Jefferies flags textiles, pharma, autos, and aviation as big winners in landmark agreement
India and the European Union are on the cusp of sealing a Free Trade Agreement that could reshape investment opportunities across multiple sectors, according to a new equity strategy note from Jefferies dated January 20, 2026.
The deal, nearly two decades in the making since talks began in 2007, targets a trading relationship worth approximately $130 billion annually—rivaling India’s trade volumes with both China and the United States.
“The key sectors in focus would be autos, electronics, textiles, pharma/chemicals,” the Jefferies analysts write, highlighting where smart money should be watching.
India currently ships around $75 billion in goods to the EU annually, representing 17% of the country’s total exports and running a healthy trade surplus of $10-15 billion.
Four Sectors Poised for Upside
Textiles: The US Tariff Escape Hatch
EU textile imports clock in at roughly $125 billion, with India holding just a 5-6% slice while China dominates with 30%. The FTA would slash Indian textile duties to match those of South Asian competitors Bangladesh and Pakistan, who currently enjoy zero tariffs versus India’s up-to-10% burden.
The kicker? “The FTA bringing Indian textile duties on par with its South Asian neighbors will be a key positive, particularly with the US tariff imposition of 50% significantly impacting this sector,” Jefferies notes. Translation: as US protectionism rises, the EU becomes the escape valve for Indian textile exporters.
Autos: European Carmakers Eye India’s 100% Tariff Wall
The EU wants to flood India’s market with cars, where current tariffs hit a eye-watering 100%. A gradual reduction or quota system for tariff-free imports is on the table.
But here’s the nuance: “Most EU large autos already have CKD units / localisation which bring eff. import tariffs to ~30% for most,” the report states. The Indian market is already competitive in the entry-to-mid segment, which may limit market share losses for domestic automakers.
Pharmaceuticals: Near-Zero Tariffs, Maximum Compliance
Currently, “the EU imposes tariffs of 0% or near 0% on most pharmaceutical products exported from India.” However, Indian pharma companies must navigate additional compliance requirements to access the EU market.
Jefferies sees this as a catalyst: “Any easing of these requirements could be a positive catalyst for Indian pharma stocks.”
Aviation: The BCD Sweet Spot
Aircraft and aircraft parts face Basic Customs Duty ranging from 2.5-10% in India. Under an FTA, these costs could drop significantly.
The technical advantage: “IGST (largely 5%) applies across most aviation imports but is input-creditable against ticket GST, making tariff relief on BCD the more relevant lever.” Lower input costs could boost margins for Indian airlines and aviation services companies.
The Wildcards: Services and Spirits
Beyond goods, India enjoys a $9 billion surplus in services trade with the EU (total services trade: $72 billion). The country will push for easier visa access for its tech and medical professionals, while the EU may demand greater opening of India’s financial, legal, and professional services sectors.
Dark horse opportunity: “Categories which may see some higher competition could include wines & spirits and cosmetics,” the analysts note—sectors where European brands could gain ground.
Not everyone wins. The “politically important agri / dairy sector” will likely be excluded, similar to India’s recent UK trade deal. Agriculture remains the third rail of Indian trade negotiations.
The Broader Picture
This deal could be more than just an EU story. As Jefferies observes, it “may raise the hopes of a potential India US trade agreement.” With US-China tensions simmering and supply chain diversification accelerating, India is positioning itself as the alternative manufacturing hub—and this FTA is another brick in that wall.
