India’s U.S. and EU trade deals: Who will gain

The trade pact between India and the U.S. — which will see tariffs on Indian exports lowered to 18% from 25% — comes less than a week after India reached a major free trade agreement with the EU.

Announcing the deal in a TruthSocial post, Trump said India had agreed to cease buying Russian crude oil. He had previously imposed an additional 25% levy in retaliation to this. India will switch to U.S., and potentially Venezuelan, oil, while also pledging to buy $500 billion in agriculture, tech, energy, and other products, Trump said.

While many specific details of the India-U.S. deal are yet to be fully hashed out — in contrast with last week’s comprehensive agreement between the EU and India — India’s manufacturing sector is seen as a major initial beneficiary, according to investors, while I.T. and pharmaceuticals could also see a boost.

The country’s labor-intensive export sector — which spans textiles, clothing, leather, jewelry, toys and furniture making — now has the opportunity to regain ground lost to key manufacturing competitors in the region, according to James Thom, senior investment director of Asian equities, at Aberdeen Investments.

Thom pinpointed smaller and medium companies as among those likely to see a boost from the new 18% tariff rate, which is lower than that of rival Pakistan, where the levy is 19%, as well as Vietnam and Bangladesh — each subject to 20% tariffs.

“Removing that overhang should also support banks, non-banking financial companies and export-oriented manufacturers, while lifting retail sentiment in small and mid-caps,” Thom said in a market commentary.

Bernstein said that last week’s India-EU treaty likely prompted the U.S. to accelerate Monday’s deal with India. Analysts noted how the agreement brings India broadly in line with its Association of Southeast Asian Nations peers — “incrementally a big positive” — and boosts its position relative to China.

Bernstein analysts Venugopal Garre and Nikhil Arela said that, while certain sectors such as autos and metals could still face sector tariffs, information technology will benefit from improved relations between the two countries.

“I.T. has the largest exposure to the US, and while the deal primarily covers manufactured goods, our outlook was that improved US-India relations — even if short-lived — would reduce scrutiny on I.T. services and lower the risk of further punitive actions, such as additional taxes,” Garre and Arela wrote.

They outlined a tactical ‘buy’ trade based on a short-term rebound in Indian equities underpinned mainly by financials, I.T., and telecoms, while manufacturing and trade-linked stocks “should also see some recovery.”

Monday’s deal comes hot on the heels of India’s “landmark” FTA with the EU — dubbed “the mother of all deals” by European Commission President Ursula von der Leyen — which substantially lowers or eliminates tariffs on a range of goods and services.

Fitch Ratings’ research unit BMI zeroed in on India’s pharmaceutical sector, highlighting the elimination of 11% tariffs on EU drug imports — such as cancer therapies, biologics, and GLP-1s — which amounted to $1.2 billion in 2024.

BMI said lower import costs and improved supply chains underpin its positive outlook on India’s pharma space, where it sees a market growth of $31.2 billion in 2025 to $45.7 billion by 2035 — a 10-year compound annual growth rate of 5.2% in local currency terms.

“The agreement will also help India-based firms to diversify export destinations and open new opportunities in the large EU market,” it added, noting how India’s pharmaceutical exports have stagnated recently.

“This recent stagnation reflects ongoing market access challenges and regulatory complexity. We believe the FTA will reverse this trend, as the deal is expected to align regulatory compliance processes, reducing approval timelines and lowering administrative costs associated with product registration and licensing. This will position exports to resume their growth trajectory.”

Russ Mould, investment director at A.J. Bell, said the trade deal lifted market sentiment and gave greater clarity to investors, highlighting the Sensex’s 2.5% rise following the agreement. The Sensex is made up of 30 companies that are some of the largest and most actively traded on the Bombay Stock Exchange.

U.K.-listed investment trusts with exposure to India were also among the major gainers on the FTSE 250 on Monday, including Ashoka India’s 5.6%, Mould added.

“India has been a rich source of returns for investors over the past few decades, but Trump’s tariff regime stalled momentum in the Sensex index,” Mould said. “Investors will now be wondering if the trade deal effectively removes the shackles on the market and breathes new life into it, rather than simply resulting in a short-term relief rally.”

— CNBC’s Chloe Taylor and Michael Bloom contributed to this story.