mumbai, Feb. 5 -- The easing of trade and regulatory uncertainty following the India-US trade deal could spur capital formation in the Indian stock market, Securities and Exchange Board of India (Sebi) chairman Tuhin Kanta Pandey said on Wednesday. "Fundamentally, when you have an overhang of a regulatory action, which is removed, and trade frictions removed, any capital formation is always accelerated with the removal of uncertainties," Pandey said at Sebi's inaugural pan-India outreach programme for corporate bonds in Mumbai. US President Donald Trump said earlier this week that he and Indian Prime Minister Narendra Modi had agreed on a trade deal between the two countries, under which Washington would lower reciprocal tariffs on Indian goods from 25% to 18%, while India would reduce tariffs and non-tariff barriers on US imports to zero. Markets saw this as a step towards reducing external uncertainty, even as foreign investor flows into Indian equities remain volatile. Despite the reduction of external uncertainty, Pandey said foreign investors may also look at the risk-return dynamic in Indian capital markets before deciding whether to re-enter. "FPIs (foreign portfolio investors) and FIIs (foreign institutional investors), they have their own decision, when they go, how they come, and in what return they go," said the Sebi chief. He added that the trade deal could also lead to "salutary movements on the exchange rate, which also bring in stability and predictability." Foreign investors have been exiting the Indian stock market in droves over the past year due to uncertainty around the India-US trade deal, weak earnings and high valuations. FPIs clocked a net outflow of Rs.1.66 trillion from the equities market in 2025, against inflows of Rs.427 crore in 2024, according to data from National Securities Depository Ltd. Foreign investors have pulled out Rs.35,962 crore net from Indian equities so far in 2026. On the Union Budget for FY27, Pandey said Sebi and the Reserve Bank of India (RBI) would work in tandem on finance minister Nirmala Sitharaman's recommendation to deepen the bond market. The budget proposed introducing total return swaps on corporate bonds and a market-making framework to deepen India's bond market. Total return swaps will allow investors to gain the full economic exposure of bonds without owning them, while market makers will provide continuous buy and sell quotes, improving liquidity, price discovery and secondary market participation....