India-EU trade deal could boost market sentiments; check sectors likely to benefit

A recent Jefferies equity strategy report highlights that India’s annual goods trade with the EU is around $130 billion

• India-EU FTA seen as a sentiment boost, not a structural market game-changer
• Textiles, services, pharma, and aviation sectors may benefit from the FTA
• Actual impact depends on execution and timelines, say some investors

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Indian equity markets are likely to view the much anticipated India–European Union free trade agreement (FTA) as a positive sentiment trigger rather than a structural game-changer, with select sectoral opportunities across textiles, services, manufacturing, aviation and pharmaceuticals, experts suggest. Momentum around the talks has picked up after European Commission President Ursula von der Leyen, speaking at the World Economic Forum in Davoson January 21, said the EU was working to deepen its strategic and economic partnership with India and was on the cusp of signing a trade deal.

A recent Jefferies equity strategy report highlighted that India’s annual goods trade with the EU is around $130 billion, comparable to trade with the US or China. India exported an annualised $75 billion worth of goods to the EU in 2025, while imports stood at about $65 billion, leaving a $10–15 billion trade surplus, largely driven by petroleum product exports and rising electronics shipments. Services trade is also significant at $72 billion, with India enjoying a $9 billion surplus.

Markets and sentiment

Negotiations for the deal began in 2007 and stalled for nearly a decade but now appear close to conclusion, helped by broad alignment on excluding politically sensitive areas such as agriculture and dairy, according to Jefferies. As a result, the brokerage expects the agreement’s economic impact to be concentrated in industrial goods and services rather than farm-linked segments.

In a recent conversation with Moneycontrol, Elara Capital's Harendra Kumar noted that the real story for markets lies in India’s aggressive push toward FTAs, marking the country’s biggest reform movement since the 1990s. “India is fundamentally changing its geoeconomic strategy by opening its markets, reducing trade barriers, and encouraging two-way trade. This shift is being underestimated by markets,” he said.

“Markets should react positively to the EU–India FTA. For Indian companies, it potentially provides a large alternative market to the US, which is now facing hurdles due to high tariffs,” said Vikas Gupta, founder and CEO of Omniscience Capital.

Jefferies expects textiles and apparel to be among the clearer beneficiaries. The EU imports about $125 billion of textiles and apparel annually, where India has only a 5–6% share compared with China’s 30%. Indian exporters currently face tariffs of up to 10%, while competitors such as Bangladesh and Pakistan enjoy zero-duty access. An FTA could level the playing field, especially at a time when US tariffs have sharply increased.

Gupta sees upside across multiple segments. “At the higher end, professional services including IT and consulting, and engineered goods or industrials should be impacted positively. Pharma and healthcare are also likely to have a positive impact,” he said. For pharmaceuticals, EU tariffs are already near zero, but Jefferies said easing compliance requirements could act as a meaningful positive catalyst for Indian drugmakers.

“In the mid-end, branded and white-labelled apparel, footwear, marine products and other labour-intensive sectors are likely to benefit,” Gupta added.

In autos, Jefferies notes that while the EU is pushing for lower import tariffs — which can go as high as 100% the impact on Indian OEMs may be limited. Most large European automakers already operate localised or CKD units, bringing effective tariffs closer to 30%, while intense competition in entry- and mid-segments may cap market share gains.

The report also flags aviation as a niche beneficiary. Basic customs duty on aircraft and parts ranges from 2.5–10%, and any reduction could lower input costs for Indian carriers. In contrast, IGST on aviation imports is largely creditable, making customs duty relief the key lever.

The EU, meanwhile, is expected to seek better access for luxury automobiles, alcoholic beverages, fashion brands and high-end machinery, while also positioning India as an alternative manufacturing base as it looks to reduce dependence on China.

Cautious voices

Not all investors expect a lasting boost. A fund manager who did not wish to be named said the deal “does not do much beyond improving sentiment temporarily, with actual benefits dependent on execution and timelines.”