Global Capital Misjudging Potential of Proposed India-US Trade Agreement

Global Investors Underestimate India's Potential in US Trade Agreement

A recent monthly note from Quant Mutual Fund suggests that global investors are underestimating the long-term significance of a potential India-US trade agreement, which could position India among the biggest beneficiaries of shifting global capital flows.

The fund house believes that India's strength in export services, sizeable foreign-exchange reserves, and growing role in technology and digital infrastructure could allow the country to benefit disproportionately from deeper economic engagement with the United States. Despite rising geopolitical tensions, elevated commodity prices, and concerns over slowing global growth, Quant Mutual Fund remains constructive on India's equity markets.

Market Rebound in May

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The optimism follows a strong rebound across global markets in May. The S&P 500 in the United States advanced sharply, gaining 5.15%, while Japan's Nikkei 225 rose 10.9% after adding 11.6% in April. South Korea's KOSPI also touched record highs. India's Nifty 50, however, remained relatively subdued, declining 1.9% during the month. Market volatility eased considerably, with the US VIX falling 9.3% to 15.3 and India's volatility index dropping another 12% after a steep decline in April.

Global Economic Outlook Remains Challenging

Despite the recovery in risk assets, the global economic outlook remains challenging. S&P Global has lowered its forecast for 2026 global real GDP growth to 2.2%, while inflation concerns persist amid elevated commodity prices and a more hawkish stance from major central banks. The US Federal Reserve has signalled the removal of its easing bias, reflecting a tighter policy outlook.

Artificial Intelligence and India's Potential

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The report also highlighted the intensifying global race in artificial intelligence. Anthropic reportedly closed a $30 billion funding round that pushed its valuation beyond $900 billion, intensifying competition with OpenAI. At the same time, infrastructure spending linked to AI continues to accelerate. Quant cited NextEra's reported $67 billion acquisition of Dominion Energy as an example of the growing investment required to power next-generation AI data centres.

According to the fund house, India is well positioned to emerge as a major global hub for data, technology, and related infrastructure over the coming decade. While international investors continue to favour India over China, the report noted that limited domestic exposure to artificial intelligence and continued dependence on imported crude oil remain headwinds for earnings growth and broader market sentiment.

Domestic Front

On the domestic front, Quant said India's fiscal position remains prudent despite geopolitical disruptions and pressure on the rupee. The report expects coordinated action by the government and regulators to support the Reserve Bank of India's low-rate stance. It also highlighted the government's decision to allow gradual increases in retail fuel prices after a four-month pause and welcomed the recently concluded India-US critical minerals cooperation framework aimed at strengthening supply chains for rare earth elements and strategic metals.

Market Expectations and Portfolio Positioning

While warning that higher crude prices, rising input costs, and logistical challenges could affect corporate profitability in the near term, the fund house expects Indian markets to consolidate before resuming their upward trajectory. Large-cap stocks are likely to participate in the country's broader economic expansion, but the strongest opportunities for outperformance are expected to emerge from the micro-, small-, and mid-cap segments. Quant MF has positioned its portfolios toward under-owned, under-researched, and undervalued opportunities, reducing exposure to manufacturing companies and modestly increasing allocations to technology.