Experts predict that Indian equity markets will see the highly anticipated free trade agreement (FTA) between India and the European Union as a positive sentiment trigger rather than a structural game-changer, with specific sectoral opportunities across textiles, services, manufacturing, aviation, and pharmaceuticals.
India-EU Trade Agreement Momentum Builds
Speaking at the World Economic Forum in Davos on January 21, European Commission President Ursula von der Leyen stated that the EU was trying to strengthen its strategic and economic engagement with India and was on the verge of finalizing a trade agreement, which has increased the momentum around the negotiations.
India’s yearly goods trade with the EU is about $130 billion, which is equal to trade with the US or China, according to a recent Jefferies equity strategy research. In 2025, India’s annualized exports to the EU were $75 billion, while its imports totaled roughly $65 billion.
India-EU Trade Data and Market Impact
This resulted in a $10–15 billion trade surplus, which was mostly driven by the country’s growing exports of electronics and petroleum products. At $72 billion, services trade is also substantial, with a $9 billion surplus for India.
According to Jefferies, negotiations for the agreement started in 2007, languished for almost ten years, and now seem to be nearing completion thanks to widespread agreement to exclude politically sensitive sectors like dairy and agricultural.
Sectoral Focus of the Trade Agreement
Because of this, the brokerage anticipates that the deal will have a greater economic impact on industrial goods and services than on segments related to farming.
Harendra Kumar of Elara Capital stated in a recent interview with Moneycontrol that India’s aggressive pursuit of free trade agreements (FTAs), which represents the nation’s largest reform effort since the 1990s, is the true story for markets.
India’s Geoeconomic Strategy Shift
By expanding its markets, lowering trade obstacles, and promoting two-way commerce, India is radically altering its geoeconomic strategy. “Markets are underestimating this transition,” he stated.
The EU-India FTA should have a positive impact on markets. According to Vikas Gupta, founder and CEO of Omniscience Capital, “it might provide Indian businesses a sizable alternative market to the US, which is now encountering obstacles due to high tariffs.”
📊 India–EU Trade Agreement Snapshot
- Annual Goods Trade: $130 billion
- India Exports: $75 billion
- India Imports: $65 billion
- Trade Surplus: $10–15 billion
- Key Drivers: Electronics & petroleum products
- Services Trade: $72 billion
Textiles and Apparel: Clear Beneficiaries
Jefferies anticipates that clothing and textiles will be among the most obvious benefactors. India buys only 5–6% of the $125 billion worth of textiles and clothing that the EU imports each year, compared to China’s 30%.
While rivals like Bangladesh and Pakistan have zero-duty access, Indian exporters are currently subject to levies of up to 10%. Particularly in light of the recent steep rise in US tariffs, an FTA could level the playing field.
High-End and Mid-End Sector Opportunities
Gupta sees potential in a number of areas. Professional services, such as IT and consulting, as well as engineered goods and industrials, could benefit at the higher end.
Healthcare and pharmaceuticals are also probably going to be beneficial, he added. EU tariffs on pharmaceuticals are already almost negligible, but according to Jefferies, lowering compliance standards might be a significant boost for Indian pharmaceutical companies.
“Branded and white-labeled clothing, footwear, marine items, and other labor-intensive industries are likely to profit in the mid-end,” Gupta continued.
🏭 Sectors Likely to Benefit
- Textiles & Apparel: Tariff relief, export growth
- IT & Professional Services: Market access expansion
- Pharmaceuticals: Easier compliance norms
- Manufacturing & Industrials: Engineered goods exports
- Aviation: Lower aircraft and parts duty
Autos and Aviation: Limited but Selective Gains
Jefferies points out that although the EU is advocating for reduced import duties, which can reach 100%, there might not be much of an impact on Indian OEMs.
While fierce competition in entry- and mid-segments may limit market share increases, the majority of major European automakers now run localized or CKD units, bringing effective tariffs closer to 30%.
Additionally, the report identifies aviation as a specialized benefactor. Any decrease in the basic customs charge of 2.5–10% on aircraft and parts could result in cheaper input costs for Indian airlines.
On the other hand, customs duty alleviation is the primary lever because IGST on aircraft imports is mostly creditable.
EU’s Strategic Interests and China Diversification
In the meantime, in an effort to lessen its reliance on China, the EU is anticipated to strive for improved access for high-end machinery, fashion brands, luxury cars, and alcoholic drinks, as well as to position India as an alternative manufacturing base.
Not every investor anticipates a long-term increase. The agreement “does not do much beyond easing mood briefly, with actual advantages reliant on execution and timescales,” according to a fund manager who wished to remain anonymous.
Frequently asked questions
1. Describe the India-EU free trade agreement and explain its significance for markets.
In an effort to lower trade barriers, India and the EU are proposing a free trade pact. It is viewed by markets as a positive sentiment trigger that enhances export prospects and diversification outside of the United States.
2. Which industries stand to gain the most?
Textiles and apparel, IT and professional services, pharmaceuticals, manufacturing and industries, aviation, and certain labor-intensive industries like footwear and marine items are among the main benefits.
3. What makes the textile industry a big winner?
Every year, the EU imports about $125 billion worth of textiles. While competitors like Bangladesh enjoy free tax, Indian exporters are currently subject to tariffs of up to 10%. An FTA might increase India’s market share and level the playing field.
4. How will services and drugs benefit?
Although pharmaceutical tariffs are currently almost negligible, Indian pharmaceutical companies may benefit from simpler compliance and regulatory alignment. India already has a $9 billion surplus in services trade, which might grow even more.
5. Will the agreement affect markets in the long run?
There are differing views. While some regard it as a component of India’s biggest reform initiative since the 1990s, others think the benefits would be fleeting if implementation and deadlines are unclear.
Conclusion
Instead of causing a wide-ranging structural change, the India-EU free trade agreement is probably going to have a short-term positive impact on Indian equities markets through selective, sector-specific gains.
The industries that stand to gain the most are textiles, services, pharmaceuticals, manufacturing, and aviation; however, the overall impact will be largely dependent on execution, timeliness, and regulatory ease.
Even if the deal’s immediate market gains are still limited, in the long run it reinforces India’s objective of expanding export markets and positioning itself as a global manufacturing and services powerhouse.
Disclaimer: This content is for informational purposes only and should not be construed as investment advice. Market views are based on publicly available information and expert opinions. Investors should conduct their own research or consult a qualified financial advisor before making any investment decisions.
