By- Tannistha Dey
The Indian equity markets witnessed sharp sectoral action on Tuesday following the announcement by India and the European Union that the Free Trade Agreement (FTA) has been finalized, with auto stocks facing pressure and textile exporters rallying.
The stocks of domestic automakers fell by 1-4%, thereby pushing the Nifty Auto index down by 0.9%. Hyundai Motor India closed 4% lower, while Maruti Suzuki India finished 1.4% lower after plummeting by a steep 3% intra-day. Mahindra & Mahindra closed 4.2% lower, after touching a low of 5.6% intra-day.
The fall in sales was triggered by concerns that a cut in import duties on European cars might result in stiffer competition for domestic automakers, particularly in the luxury and SUV segments. As per the FTA, India will gradually cut import duties on as many as 2.5 lakh European cars per year to 10% from the current 110% on European cars.
This is much higher than the 37,000 units allowed under the India-UK FTA. Import duties on most auto parts will be eliminated in five to ten years.
Analysts feel that companies with a stronger presence of SUVs in their respective portfolios will be impacted. “The volume impact could be around 3-4% for Mahindra & Mahindra and 1-2% for smaller SUV players like Maruti Suzuki and Tata Motors,” said an analyst at a local brokerage firm.
The European Commission described it as “the most ambitious trade opening India has ever granted,” and estimated that the EU’s exports of goods to India could double by 2032.
In 2024, the EU’s exports of motor vehicles to India were at €1.6 billion. However, economists drew attention to the fact that certain safeguards have been provided. DBS Bank’s senior economist, Radhika Rao, said that cars below ₹25 lakh will continue to be safeguarded, while entry into the EV market will be allowed only after five years.
Also weakening were shares of pharmaceutical and alcoholic beverage firms. Although the tariffs on pharmaceuticals will go to zero from 11%, the duties on European wines, spirits, and beer will drop significantly to 20-50% from 110-150%, increasing competitive pressures on local firms.
Textile shares, however, rallied after the EU agreed to lower tariffs on Indian textiles and garments to zero from 12%. Welspun Living, KPR Mills, Vardhman Textiles, and Indo Count Industries gained between 2% and 6%. The textiles ministry stated that zero duty could open the EU’s ₹22.9-lakh-crore import market, which would help exports, production volumes, and capacity utilization.
Export-oriented seafood companies also rallied, with Avanti Feeds gaining 3% and Apex Frozen Foods soaring 10% on hopes of increased EU market access.
Although the Sensex initially weakened by nearly 450 points, it managed to close 0.4% higher, while the Nifty 50 ended 0.5% higher, reflecting the mixed market reaction to India’s biggest trade opening so far.