India-EU free trade agreement: India’s Free Trade Agreement with the European Union, finalized on January 26, 2026, marks one of the most consequential trade alliances in recent history. Covering economies that together represent nearly 25 % of global GDP and 33 % of global trade, the agreement is expected to accelerate India’s integration into global supply chains and strengthen its long-term export competitiveness.
For Indian stock markets, the deal is undeniably positive. It enhances India’s positioning in a rapidly fragmenting global trade environment and opens up tariff-friendly access to the world’s largest trading bloc. However, market experts caution that the India-EU pact must not be viewed as a substitute for a potential India-US trade deal — a distinction that carries material implications for sectoral earnings, capital flows and market valuations.
VK Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, drew attention to this asymmetry, noting that India’s trade surplus with the US is about $45 billion, compared with roughly $25 billion with the EU. “India’s FTA with the EU is a major breakthrough, but it should not be seen as a substitute for an India-US trade deal,” he said, adding that the EU agreement is expected to become operational only in early 2027, implying a staggered rather than immediate market impact.
stock market implications
From a market standpoint, the India-EU agreement strengthens diversification rather than dominance. Bilateral trade between India and the EU already exceeds $135 billion annually, and the deal aims to liberalize tariffs across 90–95 % of traded goods over time. Sectors such as textiles, apparel, leather, footwear, marine products, gems and jewellery, engineering goods and automobiles are expected to gain incremental access to European markets, improving export volumes and supply-chain resilience.
Rajani Sinha, Chief Economist at CareEdge Ratings, believes the agreement will materially benefit India’s labour-intensive sectors and services exports, particularly through improved mobility, digital services access and deeper participation in global value chains. At the same time, she has cautioned that increased market access will expose domestic players to tougher competition, making execution and cost efficiency critical for listed companies.
Yet, for Dalal Street, the US remains structurally more important. American markets offer deeper consumption demand, faster scaling opportunities and superior pricing power for Indian exporters. This is especially relevant for IT services, pharmaceuticals, specialty chemicals and auto components, sectors that carry significant weight in benchmark indices and are closely tracked by global investors.
Vikas Gupta, CEO and Chief Investment Strategist at OmniScience Capital, has highlighted that while the EU deal expands opportunity, it also serves a different purpose — providing alternative markets for products traditionally exported to the US. The agreement helps hedge against US tariff uncertainty, but it does not replicate the earnings intensity or market depth that US exposure provides to Indian corporates.
Adding to this perspective, Munjal Almoula, Managing Partner – Tax & Regulatory Advisory at BDO India, has emphasized the strategic design of the pact. The India-EU FTA is structured as a “living agreement”, incorporating digital trade, advanced manufacturing collaboration and sustainability mechanisms. This enhances long-term competitiveness but also underscores why benefits will accrue over multiple years rather than trigger an immediate market rerating.
What investors should take away
For investors, the takeaway is nuanced. The India-EU trade deal strengthens India’s long-term structural growth narrative, supports export-oriented manufacturing and reinforces the China-plus-one theme. Over time, this can translate into steadier earnings growth and improved global positioning for select sectors.
However, markets should not conflict strategic diversification with economic substitution. The US remains India’s most critical trade partner from an equity-market perspective, and any progress on an India-US trade deal would likely have a sharper and more immediate impact on earnings upgrades, foreign inflows and market sentiment.
In short, Brussels matters — but Washington still moves Dalal Street more decisively. The India-EU deal is a powerful complement, not a replacement, and investors would do well to position portfolios with that distinction firmly in mind.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
