India-EU FTA: Brokerages decode impact for markets, sectors, companies

India and the European Union (EU) agreed on a trade deal on Tuesday after two decades of intermittent negotiations, with the current ones ongoing since 2022. 

 

While markets gave a lukewarm response to the development primarily due to the approaching Union Budget scheduled to be presented on February 01 and other global / geopolitical developments, brokerages back home have given a mixed response to the development.

 

That said, most analysts agree that the 'Mother of all deals' is a step in the right direction, implementation of the agreed terms and the benefit from the deal will take time to flow to India Inc's coffers.

 

 

A single trade deal that can grant India access to 27 markets is indeed lucrative, wrote analysts at Bernstein in a note. “If we were to treat EU as a single country, it would be India’s second largest export partner, with export value nearly 88 per cent of the US,” wrote Venugopal Garre, managing director at Bernstein in a coauthored note with Nikhil Arela. 

 

In fiscal 2024-25 (FY25), India, according to HSBC, exported $76 billion worth of goods to the EU and bought $61 billion worth of goods from the EU. Large gains from this deal, it believes, are possible across several sectors – machinery, jewellery, electronics, pharmaceutical components, and textiles.

 

Here's how leading brokerages have interpreted the development:

 

Bernstein

 

The negotiated deal will now be published, translated in all EU languages and undergo legal revision before being put forward to the European council for its approval, further requiring European Parliament’s consent. All this may take a year, before which EU’s agreements with Indonesia and Mexico might enter into force.

 

The intent is right, but the execution seems to be in a “ticking clock” mindset, where stopgap solutions are devised for export sectors hit hard by US tariffs. However, India starts this race from ten steps back - limiting both the economic as well as market impact from the “Mother of all Deals”.

 

HSBC

 

Beyond trade, the deal also has strategic implications for the EU as it allows to strengthen the diplomatic and defence ties with a key strategic partner in Asia. It also supports diversification away from China and the US, extending the push seen with the recent EU-Mercosur deal. 

 

However, EU farmers may protest against agricultural imports from India. The FTA still needs to be approved by the European Parliament (EP), which would take at least a year. Recently, the European Court did not approve the EU-Mercosur deal, which now awaits judgement by the EP.

 

Secondly, the EU’s carbon border levy could blunt some tariff gains for India, especially for sectors such as steel, although reports suggest some flexibility has been secured. Either way, key sectors like pharma and textiles are relatively less carbon intensive.

 

Motilal Oswal Financial Services

 

Key stock beneficiaries include Jindal Stainless, SAIL, JSW Steel, L&T Technology Services, KPIT, PI Industries, Godrej Agrovet, UPL, Coromandel International, auto OEMs, capital goods and defense names. Smaller sectors like agriculture, textiles, agro-chemicals, leather, gems & jewelry, chemicals etc. stand to gain.  

 

Large IT services players like TCS, Infosys, HCLT, Wipro and TechM will benefit from more stable EU demand access and diversification beyond the US. The bigger relative upside is for ER&D-focused companies, given their higher exposure to European OEMs and engineering-led clients.

 

Antique Stock Broking

 

The trade deal is beneficial for both the countries. For the EU, it represents a "strategic autonomy" move to reduce reliance on the US and China. For India, it helps integrate more deeply into global value chains, support manufacturing, increase employment and FDI/ FII inflows (around 10 per cent of total).

 

Lower duties should support higher export volumes into the EU (Dr. Reddy, Torrent Pharma). The EU is also a source for certain specialized APIs, intermediaries, and high-tech drug components-thus leading to lower manufacturing cost. That apart, EU is India's second largest IT spend market (around 16 per cent of total revenue). The indirect impact includes reduced compliance barriers, improved access and mobility for Indian professionals, which will help companies to de-risk their dependence on the US.