{"id":39911,"date":"2026-02-07T09:21:53","date_gmt":"2026-02-07T03:51:53","guid":{"rendered":"https:\/\/kuvera.in\/blog\/?p=39911"},"modified":"2026-02-13T14:17:30","modified_gmt":"2026-02-13T08:47:30","slug":"truce-not-triumph","status":"publish","type":"post","link":"https:\/\/kuvera.in\/blog\/truce-not-triumph\/","title":{"rendered":"Truce, Not Triumph"},"content":{"rendered":"

When US President Donald Trump imposed 50% tariffs on India last August, it caught many by surprise. After all, the India-US ties were supposedly good and so was Trump\u2019s personal equation with Prime Minister Narendra Modi. The tariffs not only hurt exporters but also weighed on the stock markets and weakened the rupee.<\/span><\/p>\n

That period of damaging uncertainty appears to have paused this week with another surprise announcement by Trump\u2014India and the US had agreed on a trade deal that would lower US tariffs on Indian goods to 18%.<\/span><\/p>\n

At this stage, it is not yet a legally finalised agreement. It is a political announcement by Trump, with confirmation from Modi and other leaders. The details are still thin, and in some cases contested. Investors are still trying to assess what has changed and what has not. But for markets, businesses and consumers, the signal mattered more than the fine print.\u00a0<\/span><\/p>\n

Benchmark indices surged as much as 5% after the announcement before paring some gains. Industry bodies welcomed the deal while fund managers hailed the removal of a persistent overhang across equities, currency, and interest rates.<\/span><\/p>\n

The most immediate shift is the removal the 50% tariff regime that had begun to weigh on India\u2019s export engine, particularly labour-intensive sectors such as textiles, seafood, and gems and jewellery. Exports to the US slumped after August, pressuring the rupee, widening the trade gap, and coinciding with sustained foreign portfolio outflows.\u00a0<\/span><\/p>\n

At 18%, India is now back in a range broadly comparable to other Asian exporters such as Vietnam, Thailand, and Bangladesh. That matters for strategic positioning, restoring India\u2019s credibility as an alternative manufacturing base at a time when global supply chains are still being reshaped away from China.<\/span><\/p>\n

Still, there are a few grey areas. Indian government officials say sensitive sectors such as agriculture and dairy will remain protected. US officials have spoken of greater access for American farm products but India has not publicly confirmed zero tariffs or zero non-tariff barriers in these sectors.<\/span><\/p>\n

Past trade agreements suggest that market access, where granted, is likely to be selective, quota-based, and gradual. Claims of India committing to purchase more than $500 billion of American goods also sit uneasily with current realities. India\u2019s annual imports from the US are under $50 billion, and even Indian officials have stopped short of endorsing such figures, reinforcing the sense that this is a framework and not a finished contract.<\/span><\/p>\n

The deeper significance of the deal lies less in trade flows and more in confidence. Over the past year, tariff uncertainty became a drag on investment decisions, capital flows, and corporate planning. It also pushed India to diversify trade relationships more actively, as the India-EU trade deal indicates.<\/span><\/p>\n

Seen in that context, the US deal functions as a stabiliser. It reduces the probability of further escalation, supports India\u2019s role in global value chains, and reopens channels for cooperation in areas investors tend to watch closely: technology, critical minerals, energy security, and advanced manufacturing.<\/span><\/p>\n

But it does not eliminate friction. Questions around energy sourcing, geopolitical alignment and the durability of this reset remain open. Trade experts caution that until a jointly released text with timelines and enforcement mechanisms emerges, this should be treated as a political signal rather than a completed deal.<\/span><\/p>\n

For long-term investors, the lesson this week is about how quickly policy risk can reprice assets \u2014 and how quickly relief can follow when that risk recedes. This agreement does not mark the end of uncertainty, but a pause in escalation. Markets appear to be adjusting to that distinction, rather than assuming away future tensions. That, in itself, is a healthier response, and a reminder that in global investing, process often matters more than proclamations.<\/span><\/p>\n

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\"SIP_Kuvera\"<\/b><\/strong><\/span><\/p>\n

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Staying the Course<\/b><\/h3>\n

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If the trade deal with the US eased one source of external pressure, the Union Budget for 2026-27 made it clear how the government plans to respond to a more uncertain world: by sticking to its chosen path rather than changing direction.\u00a0<\/span><\/p>\n

Many people initially focused on the twin surprises in the Budget\u2014the hike in securities transaction tax on futures and options trading and the change in tax treatment of sovereign gold bonds. But this Budget is best read as a statement of continuity rather than a growth push. It keeps the state firmly in the driver\u2019s seat on investment, tightens the fiscal framework, and selectively supports sectors most exposed to global disruption.<\/span><\/p>\n

For investors, the signal lies in how these elements fit together. That emphasis matters because the backdrop has changed. Global trade is less predictable, private capital remains cautious, and fiscal space is limited. In that environment, policy credibility, and execution matter more than novelty.\u00a0<\/span><\/p>\n

The clearest expression of that choice is the continued reliance on public capital expenditure. Budgeted capex rises to \u20b912.2 trillion, up over 10%, and about 4.4% of GDP \u2013 the highest level in a decade. Roads, railways, ports, and logistics remain central, alongside higher defence spending amid geopolitical strain. Analysts have noted that capex now exceeds net borrowing, suggesting asset creation is outpacing new liabilities \u2013 an important signal for fiscal durability.<\/span><\/p>\n

Where the Budget acts, it does so selectively. Support is directed at sectors tied to supply chains and long-term capacity. Semiconductors, data centres, rare earths, textiles, and critical minerals feature prominently, through measures such as mineral corridors, a second semiconductor mission, and targeted duty exemptions. The aim appears to be positioning India within shifting global production networks.<\/span><\/p>\n

One measure stands out for its time horizon. The 21-year tax holiday for foreign cloud companies investing in Indian data centres offers long-term certainty in a sector with high upfront costs and long payback periods. It reinforces the idea that this Budget is anchored in patience \u2013 betting on infrastructure and capacity that may take years to mature rather than chasing immediate returns.<\/span><\/p>\n

Equally telling is what the Budget does not do. There are no new personal tax cuts or broad consumption boosters. With income tax exemptions raised last year and GST already rationalised, household demand is largely left untouched. Support instead comes indirectly, through customs duty relief for export-oriented and labour-intensive sectors such as seafood, leather and footwear \u2013 areas most exposed to recent trade shocks.<\/span><\/p>\n

Perhaps the most consequential change lies not in how much is being spent, but in how fiscal policy will now be framed. From April 2026, fiscal policy will be anchored to a medium-term debt-to-GDP target instead of a single-year deficit number. The aim is to bring the ratio down to about 50% by 2030-31, from an estimated 55.6% next year. For investors, this framework offers flexibility without abandoning discipline \u2013 provided execution holds.<\/span><\/p>\n

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Changing Narrative<\/b><\/h3>\n

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If the Budget was about staying the course, stock markets this week offered a reminder that some industry cycles rarely move in straight lines.<\/span><\/p>\n

A sharp repricing swept through global software, data analytics, and tech-enabled professional services stocks after a new release from Anthropic unsettled a widely held assumption that artificial intelligence would mainly support existing business models rather than disrupt them. What had been framed for months as an AI tailwind began, briefly, to look like a structural challenge.<\/span><\/p>\n

The trigger was Anthropic\u2019s launch of new plug-ins for its Claude system, designed to automate complex, multi-step professional tasks across areas such as legal work, sales, marketing, and data analysis. Unlike earlier tools that assisted with discrete queries, these systems are built to plan tasks, execute them, and validate results with limited human intervention. For investors, that shift in capability mattered more than the product launch itself.<\/span><\/p>\n

Stock markets reacted quickly. Companies whose valuations rest on predictable, subscription-led revenue models \u2013 often tied to users, workflows, or billable hours \u2013 recorded sharp declines.\u00a0<\/span><\/p>\n

The concern was more about visibility than near-term earnings. If AI systems can bundle multiple functions into a single interface, the risk is that pricing power and revenue density may erode over time, as tools replace workflows that were previously billed separately, and often at premium rates.\u00a0<\/span><\/p>\n

That reassessment spilled into technology markets. Large US tech stocks weakened, advertising-related firms came under pressure and technology benchmarks fell as investors revisited long-term assumptions embedded in valuations. The impact was felt in India as well. Shares of IT services companies such as TCS, Infosys and HCL Tech declined on concerns that tasks traditionally handled by large teams of junior engineers or analysts could increasingly be automated.\u00a0<\/span><\/p>\n

However, none of this resolves the debate. Executives and some investors argue that AI will expand markets, create new categories and ultimately reinforce incumbents. Anthropic itself has said it views service firms as customers, not casualties. But markets rarely wait for certainty. This week\u2019s move was a reminder that AI optimism cuts both ways \u2013 and that when technology begins to do the work, rather than merely assist it, valuations are forced to adjust.<\/span><\/p>\n

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Into the Future<\/b><\/h3>\n
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Anthropic wasn\u2019t the only big tech news this week. The past few days also offered a glimpse into how some private capital is beginning to think about the next phase of technology, even though that may take decades.<\/span><\/p>\n

Elon Musk\u2019s SpaceX confirmed it is acquiring xAI \u2013 the Musk-owned artificial intelligence company which developed the Grok chatbot. Media reports say the deal values the combined entity’s valuation at a staggering $1.25 trillion, pushing Musk\u2019s personal wealth to over $850 billion. And with SpaceX preparing for a potential IPO at a valuation of $1.5 trillion, Musk could soon become the first and only human with a wealth of over $1 trillion.<\/span><\/p>\n

But more than the numbers, the deal brings AI, launch capability and space-based infrastructure under one privately controlled group. Indeed, the move feels closer to science fiction than finance. Here\u2019s how.<\/span><\/p>\n

Advanced AI systems are becoming increasingly resource-intensive. Training and running large models require vast computing capacity, uninterrupted power, and cooling. All that face physical, regulatory, and environmental constraints on Earth \u2013 land, water, power supply, regulations, etc. Space offers a different set of limits: abundant solar energy, orbital infrastructure, and global satellite networks that bypass terrestrial bottlenecks.<\/span><\/p>\n

That vision, however, sits far beyond any near-term horizon. Even proponents acknowledge that tangible outcomes, if they arrive at all, are decades away. This is not a development that changes consumer prices, internet access, or corporate earnings in the foreseeable future. Its significance lies elsewhere \u2013 in how long-duration capital is being deployed in anticipation of future constraints.<\/span><\/p>\n

The bet is that future AI systems will depend not just on algorithms, but on control over energy, computing capacity, and data transmission at scale. Whether that bet proves viable is unknowable today.\u00a0<\/span><\/p>\n

For investors, the takeaway is about recognising the widening gap between private capital willing to absorb extreme uncertainty and public markets that demand visibility. Projects with horizons measured in decades sit uneasily alongside quarterly reporting and near-term valuation frameworks. This development may not redefine the AI landscape. But it does underline a broader shift: some capital is already planning for constraints that markets are only beginning to price.<\/span><\/p>\n<\/div>\n<\/div>\n

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Market Wrap<\/b><\/h3>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n
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India\u2019s stock markets recorded their best week in three months, as the trade deal with the US offset the budget-day drop and the selloff in IT stocks due to fears of AI-led disruption.<\/span><\/p>\n

The Nifty 50 and the BSE Sensex climbed about 1.5% each during the extended week that began with the budget on Sunday. All but two of the 16 major sectors logged gains. The small-caps rose 0.4% and the mid-caps climbed 1.8%.<\/span><\/p>\n

The hike in the securities transaction tax on futures and options trading in the budget had pulled the markets down by 2% on Sunday but the surprise US trade deal changed the mood and propelled the markets 2.5% higher on Tuesday. Thereafter, IT stocks plunged after AI firm Anthropic launched a new tool that automates several tasks.<\/span><\/p>\n

The IT index slumped 6.4% this week. Infosys, Tech Mahindra, TCS and HCL Tech were the worst Nifty performers, falling between 5.8% and 8.2%. Wipro also ended lower.<\/span><\/p>\n

Bharat Electronics, HDFC Life Insurance, Nestle, Axis Bank and Hindalco were among the other prominent losers.<\/span><\/p>\n

Three infrastructure stocks were the top performers this week on the capex boost in the budget and strong earnings. State-run Power Grid Corp soared 14%, Adani Enterprises jumped 10.2% and Adani Ports climbed 9.2%.<\/span><\/p>\n

Max Healthcare and Trent raced more than 8% higher while IndiGo parent InterGlobe Aviation and Sun Pharma rose more than 6% each. Bajaj Finance, Tata Motors Passenger Vehicles, Jio Financial, M&M, Titan and heavyweight Reliance Industries were the other major gainers.<\/span><\/p>\n

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\"FD_Kuvera\"<\/p>\n

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Earnings Snapshot<\/b><\/h3>\n

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