Mumbai, Feb. 4 -- Indian stock markets broke into a cheer on Tuesday following news that the long-pending India-US trade deal has been finally sealed. The Nifty 50 soared 5% at open, and the volatility gauge or fear gauge India VIX slumped 8%. The conclusion of the deal has rekindled hopes that foreign institutional investors (FIIs), net sellers for most of 2025, could finally return. The Nifty 50 settled 2.6% higher at 25,727.55 while the Sensex closed up 2.5% at 83,739.13. Both indices logged their biggest single day in 8 months. Among the sectoral indices, Nifty Realty and Nifty Chemicals were the best performers, rising 4.8% and 3.8% respectively. Meanwhile, the Nifty Midcap 100 jumped 2.8% and the Nifty Smallcap 250 rose 2.9%, with both notching their biggest single-day gains in eight months. Negotiations around the deal have been anything but smooth. While the fine print still matters, its conclusion lifts a lingering cloud over the rupee, equities, and bond markets, bringing a degree of certainty that investors had been waiting for. "We see USD-INR (dollar-rupee) reversing direction and moving towards 88.5-89 in the upcoming weeks with the FPI flows reversing course," Elara Capital said in a 3 February note. The brokerage believes that even though valuation concerns persist versus peers and the hangover of AI trade remains, "we don't rule out the Indian equities becoming the best performers in Asia in the upcoming weeks". India's valuation premium has cooled significantly from its 2024 peak, even as other emerging markets have mounted a strong comeback. While solid economic momentum, consistent policy signals, and resilient earnings had long justified the premium, that buffer has steadily eroded over the past year. Sujan Hajra, chief economist & executive director at Anand Rathi Group, said India's equity underperformance over the past year can be partly explained by sustained FII outflows-driven not by weak fundamentals, but by rising geopolitical and policy uncertainty around India-US trade ties. For global investors, strained relations translated into higher risk premia, currency concerns, and capital flight, even as domestic earnings remained resilient. With the India-US deal now in place, that overhang is starting to lift, he said. Hajra noted that the real shift isn't just incremental tariff relief, but the return of geopolitical and trade stability. "As risk premia normalise, India once again looks investable to global capital - a high-growth, politically aligned, strategically important economy with deep domestic demand and improving external linkages to both the US and Europe." In that sense, Indian equities had been carrying a geopolitical discount that is now fading. The case for a catch-up rally, he said, rests less on near-term earnings upgrades and more on a reversal of the capital-market pessimism triggered by earlier tariff shocks and diplomatic friction. Deepak Agrawal, CIO -debt, Kotak Mutual Fund, said, "This development is likely to.attract foreign institutional investors (FIIs) who had been waiting on the sidelines." As part of the India-US trade deal, Washington will cut its reciprocal tariff on Indian goods from 25% to 18%, while India will lower its tariffs and non-tariff barriers on US imports to zero, US President Donald Trump said. The US will also roll back the additional 25% duty imposed on Indian goods over India's purchases of Russian crude, reports said....