India-EU trade deal won’t offset US tariff shock but sector gains are real: Goldman Sachs

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• India-EU FTA cuts tariffs on 96.6% of EU goods, saving exporters €4B annually
• Autos, chemicals, machinery, and pharma sectors to gain most from the deal
• Overall EU GDP impact is modest, but sector-level gains are significant

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The long-awaited India-European Union free trade agreement may be politically historic, but its near-term economic impact will be far more modest than headline rhetoric suggests, according to Goldman Sachs.

Goldman Sachs estimates that even a fully implemented EU-India FTA would lift European exports by less than €20 billion, or roughly 0.1 percent of EU GDP. That would offset only about one-third of the export drag Europe faces from higher US tariffs, underscoring that trade diversification, while helpful, cannot replace access to the US market.

However, it argues that while the aggregate growth impact may be limited, the agreement creates meaningful, highly targeted gains at the sector and stock level.

Under the deal, India will eliminate or sharply reduce tariffs on 96.6 percent of EU goods exports, translating into estimated annual savings of around €4 billion for European exporters.

The biggest beneficiaries are sectors that were previously most tariff-constrained. Auto tariffs will fall from as high as 110 percent to 10 percent under a quota of 250,000 vehicles, while auto parts will become duty-free within five to ten years. Tariffs on machinery, which previously ran as high as 44 percent, will be eliminated. While chemicals duties of 22 percent and pharmaceutical tariffs of 11 percent will be cut to zero. Even consumer categories such as wine and spirits will see steep reductions over time, with wine tariffs falling from 150 percent to 20 to 30 percent.

Goldman Sach’s conviction on these sectors is rooted in trade elasticity data

Based on empirical estimates, a 10 percent decline in tariffs typically boosts exports by around 13 percent in the short term and as much as 40 percent over the long run. That makes autos, chemicals, electrical machinery and aerospace (where EU exports remain under-represented despite high tariff barriers) the clearest winners from the agreement.

Markets appear to be pricing this in already

European autos and parts stocks have outperformed their Indian peers by around 8 percent over the past two weeks as news of the deal filtered through. Goldman’s basket of European companies with high India exposure (GSSTINDI is up 6.2 percent year-to-date), making it the best-performing regional exposure basket, ahead of Europe-China and broader emerging-market exposure.

Despite the rally, Goldman does not see valuations as stretched

Despite this outperformance, Goldman does not see excessive exuberance. The GSSTINDI basket trades at around 15 times forward earnings, broadly in line with its historical average and at a clear discount to MSCI India, which trades near 21 times earnings and sits around the 80th percentile of its valuation range since 2010. On a PEG basis, the basket also screens inexpensive, with consensus expecting 10 to 15 percent earnings growth.

More strategic opportunity lies in how limited India exposure still is within European equities

Less than 2 percent of STOXX Europe 600 revenues currently come from India, a position Goldman likens to China’s share in the early 2000s. As a reference point, European companies exposed to China generated just 10 percent of revenues from the country in 2005, a figure that has risen to nearly 30 percent today.

The repeated emphasis on valuation is deliberate. Goldman is positioning India exposure inside European equities as a “growth at a reasonable price” theme — offering access to India’s expansion without paying Indian market multiples.

“Taking China as a precedent, we see scope for European companies to increase their customer base in India over time,” Goldman notes, framing the FTA less as a trade creation story and more as an acceleration of an already deepening relationship.

That backdrop is reinforced by India’s macro outlook

Goldman expects India’s GDP to grow 6.7 percent in 2026 and 6.8 percent in 2027 (above consensus) with inflation close to target and the rupee past the worst of its underperformance. Thus, creating a more stable environment for foreign corporates expanding into the country.

Still, it cautions against over-interpreting the agreement

Europe will retain protection for sensitive agricultural sectors, strict rules of origin will limit trade diversion, and carbon border taxes under the EU’s CBAM regime could weigh on Indian exports in emissions-intensive sectors such as steel and aluminium.

In that sense, the India-EU deal is less a sweeping macro reset than a targeted re-routing of trade and capital. As Goldman frames it, diversification is now the dominant strategy in a fragmenting global trade system. But it remains a strategy of margins, not miracles.