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EU FTA impact: Auto stocks slump, but textile companies climb

While India made concessions on sectors such as auto, it gained ground on labour-intensive sectors like textiles which will see the EU cutting tariffs to zero from 12%.

Written by: Akash Mandal

4 min readMumbaiUpdated: Jan 27, 2026 09:33 PM IST

While India made concessions on sectors such as auto, it gained ground on labour-intensive sectors like textiles which will see the EU cutting tariffs to zero from 12%. (File Photo)

Shares of Indian automakers slid sharply on Tuesday as India and the European Union (EU) announced the finalisation of a Free Trade Agreement (FTA) that will see auto manufacturers from the 27-nation bloc facing a sharp reduction in tariffs while entering India, potentially posing hurdles for domestic carmakers.

Shares of major automakers closed 1-4% lower compared to Monday, with the Nifty Auto index ending down 0.9%. Hyundai Motor India closed 4% lower, while Maruti Suzuki India settled 1.4% down after falling as much as 2.9%.

Mahindra & Mahindra closed 4.2% lower after falling 5.6% intraday. The manufacturer has a large portion of SUVs in its portfolio, and they are seen facing the biggest impact from the EU FTA as cars in the segment are priced around the minimum import price limit. “The impact (from the trade deal) is likely to be around 3-4% of volume for M&M and around 1-2% maybe for smaller players (in the SUV segment) like Maruti Suzuki and Tata Motors,” an analyst tracking the sector at a domestic brokerage said.

On the whole, the benchmark Sensex, which fell nearly 450 points in early trade, recovered to end 320 points or 0.4% higher at 81,857.48 points. The Nifty 50 ended 0.5% higher.

Also Read | The India–EU deal’s big swap: Automobiles & wine for labour-intensive goods

As per the FTA announced on Tuesday, India will cut the import duty on 2.5 lakh European manufactured cars per year to 10% from 110% over a period of time. This quota is far higher than the 37,000 provided by India to the UK last year under their FTA. Further, most import duties on car parts will be removed after 5-10 years.

“This is the most ambitious trade opening that India has ever granted to a trade partner,” the European Commission said in a statement, adding that it expects the FTA to lead to the doubling of EU’s goods exports to India by 2032. In 2024, the EU’s export of motor vehicles to India amounted to 1.6 billion euros.

According to Radhika Rao, Senior Economist at DBS Bank, there are special provisions in the deal for the auto sector “as authorities weigh the impact of strong imports on the domestic manufacturing sector”. “There will be an exclusion for cars prices below Rs 25 lakh (mass market) to safeguard the domestic industry, while premium segments will be more open. Add to this, access to EV markets will not be immediate and will open after five years,” Rao added.

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In addition to carmakers, shares of pharma and alcohol companies also fell on Tuesday. While India is cutting tariffs on most pharmaceuticals to zero from 11%, the duty on European wine, spirits, and beer is being slashed from 110-150% to 20-50%. Alcohol companies such as United Spirits, United Breweries, Sula Vineyards, and Radico Khaitan ended 1-3% lower.

“The agreement establishes a working group on wines and spirits for the EU and India to exchange information and cooperate, for example on oenological practices,” the European Commission said. Oenological practices are the methods and treatments employed in making wine from grapes.

Also Read | India-EU FTA ‘perfect example’ of saying no to ‘hegemons’ who use tariffs for coercion, says Canada’s energy minister

Textiles on the rise

While India made concessions on sectors such as auto, it gained ground on labour-intensive sectors like textiles which will see the EU cutting tariffs to zero from 12%. This sent share prices of exporters in this segment soaring, with Welspun Living, KPR Mills, Vardhman Textiles, and Indo Count Industries ending 2-6% higher.

After the US, the EU is India’s second-largest export destination for textiles and apparel. Key segments include ready-made garments, cotton textiles, man-made fibre and textiles (12%), and handicrafts and carpets. “Gaining zero duty access in textiles and clothing, covering all tariff lines and reducing tariffs by up to 12%, would open up the EU’s Rs 22.9 lakh crore import market,” India’s textiles ministry said on Tuesday.

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Zero duty on Indian garments and textiles will make them much cheaper for Europeans. This can translate into bigger buyer contracts, longer production runs, and steadier factory utilisation.

Shares of export-oriented shrimp and aquaculture companies such as Avanti Feeds and Apex Frozen Foods ended 3% and 10% higher, respectively, on the back of the EU allowing expanded access for food and agri-linked exports.