India-EU FTA: Should you buy Indian auto stocks as tariffs on EU-made cars to be slashed to 10%? Here's what analysts say

Auto stocks

• Indian auto stocks fell after India-EU finalized free trade agreement
• India to cut car tariffs from 110% to 10% over 5-10 years under new FTA
• Tariff cuts may impact premium cars, but mass market players less affected

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The shares of automakers dropped in trade on January 27, after the India and European Union finalized their much-awaited free trade agreement (FTA). Analysts have commented on what lies ahead for the Indian automakers.

India will gradually cut tariffs on cars from 110 percent to as low as 10 percent as part of its new FTA with EU, and fully abolish duties on car parts within five to ten years, the European Commission said in a statement.

Currently, the import duty levied by India on completely built-up (CBU) passenger vehicles is 110 percent for cars costing over $40,000, and 70 percent for cars costing up to $40,000.

Indian automakers have long opposed such cuts, arguing that they would discourage investment in local production by making imported vehicles more competitive.

Should you buy Indian auto stocks?

The India-EU FTA will provide EU carmakers greater access to Indian PV market, which is the third largest globally in terms of volume just behind US and China, PL Capital said. The domestic brokerage noted that luxury vehicles comprise approximately 1 percent of the Indian market, therefore the tariff reduction should not impact the mass market players like Maruti Suzuki and entry-to-mid-level vehicles from Tata Motors Passenger Vehicles (TMPV) and Mahindra & Mahindra (M&M).

However, it added that the tariff reduction may impact premium plus cars from these players to a small extent. “Tariff reduction on BEVs from 100% is expected to be applicable after 5 years in a phased manner, giving the likes of TMPV and M&M some relief. This India-EU FTA, which has been under negotiation for long,” PL Capital said.

The immediate concern for equities is not the long-term competitiveness narrative, but near-term uncertainty around pricing, demand elasticity, and margin protection, said Harshal Dasani, Business Head, INVasset PMS. “Markets are reacting ahead of operational clarity, which explains the visible churn in auto counters despite the absence of any immediate earnings impact,” he said.

For investors, the analyst said that the key variables to track are premium-segment exposure, pricing discipline, localisation depth, and export optionality. “Companies with a strong SUV mix, diversified geographic revenues, and robust balance sheets are better positioned to absorb competitive pressure. In the near term, volatility in auto stocks reflects positioning and sentiment, not a structural reset of the industry’s earnings trajectory,” he added.

"There is a strong and positive signal of confidence in India’s long term growth story. India today is not just a large market, but a future ready economy backed by reforms and policies focused on building a globally competitive ecosystem. The India EU Free Trade Agreement would be a historic milestone benefiting both sides by expanding trade and enabling deeper exchange of technology and innovation," said Hardeep Singh Brar, President and CEO, BMW Group India.

Auto stocks:

The Nifty Auto index was down more than 1.4 percent, as seen at 2.42 pm. M&M shares were the top loser on the index, falling more than 4.5 percent to trade at Rs 3,382.50 apiece. Maruti Suzuki and Tube Investments of India shares fell around 2 percent each.

Tata Motors Passenger Vehicles (TMPV), Ashok Leyland and Exide Industries shares were down over 1 percent each, while Hero MotoCorp shares were down nearly 1 percent. Bosch, TVS Motor and Bharat Forge shares were trading in the red with marginal losses.

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