Ashish Kacholia says bear market in smallcaps may have ended after India-US trade deal

Veteran investor Ashish Kacholia believes the long and painful bear phase in smallcap stocks may finally be over, following the breakthrough India-US trade deal that has triggered a sharp relief rally across Indian financial markets.

In a post on social media, Kacholia said the biggest buying opportunities usually emerge when investors are paralysed by fear, adding that the recent trade deal announcement could mark a turning point for smallcaps. "Looks like the bear market in small caps has officially ended with Donald Trump’s tweet signing the trade deal with India," he wrote, capturing the sudden shift in sentiment after months of relentless selling pressure.

Markets appeared to validate that view on Tuesday. Indian equities, bonds and the rupee staged a broad-based rally after the US slashed tariffs on Indian goods to 18% from an earlier 50%, removing what investors had described as the single biggest overhang on Indian assets.


The Nifty 50 jumped nearly 3% in early trade, while the rupee strengthened more than 1% to around 90.40 per dollar. Bond markets also reacted positively, with the 10-year benchmark yield easing by about 5 basis points to 6.72%.

At one point during the session, the Nifty surged as much as 5%, putting it on track for its strongest single-day gain in five years. The rupee, meanwhile, was headed for its best session since November 2022. The speed and scale of the move underscored how much pessimism had been priced into Indian markets over the past several months.

Indian stocks and the currency had been under severe pressure since Washington imposed steep tariffs in late August, pushing India into the list of worst-performing emerging markets in 2025. Foreign portfolio investors had pulled out record sums, while uncertainty over trade ties, geopolitics and currency stability kept risk appetite subdued, especially in smallcap and midcap stocks that are more sensitive to global flows.

The trade deal, announced by US President Donald Trump after a call with Prime Minister Narendra Modi, is seen as a decisive break from that negative cycle. Trump said India had agreed to halt Russian oil purchases and reduce trade barriers on US exports, paving the way for lower reciprocal tariffs. Investors believe this clarity significantly improves India's relative positioning among emerging markets.

Analysts say smallcaps, which bore the brunt of foreign selling and risk aversion, stand to benefit if global flows begin to stabilise or reverse. These stocks typically offer higher operational leverage to improving growth and sentiment, but they were hit hardest during the downturn as liquidity dried up and valuations compressed.

Global investors also took note of the broader macro signal. Marcella Chow, global market strategist at JP Morgan Asset Management, said a successful bilateral trade agreement could boost investor confidence, revive foreign investment and capital expenditure plans, and support the rupee. Economists at Citi said the back-to-back trade deals with the European Union and the United States had addressed a key tail risk around geopolitical isolation that had been worrying investors.

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