India-EU FTA: Tailwind or trouble for India’s auto sector?

Subscribe to enjoy similar stories. The India-EU trade deal has failed to excite the Street, despite its brilliant optics as the “mother of all deals". Since the trade agreement was officially locked in on 27 January, the Nifty 50 has remained largely flat.

While the broader market was unimpressed, the automobile sector has been spooked. Following years of outperformance with the sector’s five-year compound annual growth rate (CAGR) of 22% significantly ahead of the broader market’s 13%, the sector has slipped deep into the red over the last few days. Will the EU trade deal mark an end to the auto sector’s rally, or is it just a hurdle until the sector finds its feet again? Let’s dive in.

India’s auto sector has remained one of investors’ favourites, despite domestic demand remaining mellow until September 2025. Exports are to thank for this. With India’s auto exports clocking double-digit growth across segments, India’s automakers had managed to buck the domestic slowdown trend in FY25.

While local demand has picked up pace amid the GST 2.0-powered festival demand spike, exports continue to remain a key driver. Sure, Trump’s tariffs have had little effect on OEM (original equipment manufacturer) exports due to limited direct exports to the US. But auto-component exports could see a contraction.

Some of the US-impact can be cushioned as the tariffs on India-made vehicle and component exports to the EU eventually go down from 10% to 0%, and 3-4.5% to 0%, respectively, under the trade deal. But there are caveats. One, the EU is a small destination for India’s exports, making up 2% of passenger-vehicle exports and 1% of two-wheeler exports.