Stock market reacted positively to India’s free trade agreement with the European Union on Tuesday, as domestic industries such as textiles, pharmaceuticals, chemicals and electronics are seen as key beneficiaries of the deal. While auto stocks reacted negatively, analysts said concerns that luxury car imports could materially hurt domestic volumes were unwarranted.
DBS Bank economist Radhika Rao called the agreement a “landmark” deal, saying it may help counter a challenging global trade outlook. Textiles, pharmaceuticals, chemicals and electronics were expected to gain from the agreement, she said.
Rao noted that the readymade garments industry, in particular, had been at a disadvantage before the deal, as peers such as Vietnam, Bangladesh and Pakistan enjoyed duty-free access to the EU market.
“With India’s current readymade garment exports to the EU at circa $4-5 billion, making up a modest market share, there is scope of strong growth in this sector when the new rates kick in by January 2027,” she said.
For pharmaceuticals, she said India’s exports could expand strongly, provided non-tariff barriers were addressed.
“While the announcement might not be market-moving, it will serve as a benefit to India’s evolving trade dynamic to diversify its trading partners, while also benefiting the EU to better balance its adverse trade balance with India. Service exports might also potentially,” Rao said.
Nifty closed the day at 25,175.40, up 126.75 points or 0.51 per cent, after hitting a low of 24,932.55 earlier in the day. Sensex ended the day at 81,857.48, up 319.78 points or 0.39 per cent. Auto stocks such as Mahindra & Mahindra, Hyundai Motor India and Maruti Suzuki India ended up to 4 per cent lower.
Aditya Jakhotia, research analyst at PL Capital, said India will reduce tariffs on EU-made fully built cars from 70 per cent to 110 per cent to about 40 per cent under the India–EU free trade agreement, with tariffs expected to be lowered further to 10 per cent over the next decade.
“This will provide EU carmakers greater access to the Indian passenger vehicle market, which is the third largest globally by volume, just behind the US and China. Luxury vehicles form 1 per cent of the Indian market. Therefore, the tariff reduction should not impact mass-market players like Maruti Suzuki and entry- to mid-level vehicles from Toyota Motor and Mahindra and Mahindra, but it will impact, to a small extent, premium-plus cars from these players,” he said.
As per Ministry of Commerce & Industry, the FTA gives a decisive boost to its labour-intensive sectors such as textiles, apparel, leather, footwear, marine products, gems and jewellery, handicrafts, engineering goods, and automobiles bringing down tariffs up to 10 per cent on almost $33 billion exports to zero on entry into force of the agreement.
“Beyond enhancing competitiveness, it empowers workers, artisans, women, youth, and MSMEs, while integrating Indian businesses more deeply into global value chains and reinforcing India’s role as a key player and supplier in global trade,” the ministry said.
Trideep Bhattacharya President and CIO Equities Edelweiss MF said the India–EU FTA arrives at a pivotal moment marked by global trade fragmentation, rising protectionism, US–India trade frictions, and elevated geopolitical uncertainty.
“The agreement could serve as an effective counter-cyclical buffer by deepening India’s integration into global value chains, expanding market access, and supporting supply-chain diversification. With the EU accounting for 17 per cent of India’s goods exports, we estimate that closer bilateral alignment could lift India’s exports to the EU by $50 billion by 2031,” he said.
Stock market outlook
VK Vijayakumar, chief investment strategist at Geojit Investments, said India’s free trade agreement with the EU was a major breakthrough, particularly in the context of the prolonged India–US trade negotiations.
That said, he believes the India–EU deal should not be viewed as a substitute for an India–US agreement.
“It is important to understand that India has a trade surplus of $45 billion with the US but only $25 billion with the EU. Therefore, even while celebrating this India–EU deal, we should tirelessly pursue the US-India deal, which India badly needs. Also, this India–EU deal will become operational only in early 2027,” he said.
Ponmudi R, CEO of Enrich Money said Indian equities traded with a measured and cautious undertone on Tuesday.
The finalisation of the India–European Union bilateral trade agreement lent some support to investor sentiment, he said but felt a sustained selling by foreign portfolio investors and muted third-quarter corporate earnings growth cap any meaningful upside in domestic equities.
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