What do India’s US and Europe trade deals mean for stock markets? Saurabh Mukherjea explains

India’s recent trade agreements with the United States and Europe mark a major shift in the country’s trade and investment environment, with large sections of imports from these regions set to enter India at near-zero duty levels.

Market expert Saurabh Mukherjea said the government deserves credit for negotiating two large trade agreements within a short period and under challenging global conditions.

“Negotiating two large trade deals within days is a remarkable achievement. The government has done a commendable job in a difficult situation,” Mukherjea said.

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At the same time, he advised investors to remain cautious. “Investors should not rush into export-oriented stocks immediately. There are multiple layers of complexity in these agreements that still need to be worked through,” he said, adding that a measured approach would be sensible at this stage.

Europe trade deal seen as a major positive

Mukherjea said the trade agreement with Europe stands out as a key positive for India. “For the first time, Indian goods are getting near-zero tariff access to European markets. This kind of access has never been available to India earlier,” he said.

He noted that sectors such as textiles could benefit significantly, as Indian exporters will now get tariff treatment comparable to countries like Bangladesh, which historically enjoyed an advantage in Europe. According to Mukherjea, when analysed sector by sector, the Europe deal appears more favourable for India than the US deal.

Key beneficiaries of the US trade deal

On the US trade agreement, Mukherjea identified three sectors as clear beneficiaries. “Gems and gemstones will, for the first time, go to the US at zero tariff. This does not include gold jewellery, which will still face tariffs,” he said.

He also highlighted leather exports, including footwear and sports goods, as sectors gaining zero-duty access to the US market. The third major beneficiary is textiles. “Textile products such as garments, bed linen and table linen will also go to the US at zero tariff for the first time,” Mukherjea said.

Areas of concern and sector-level risks

Mukherjea flagged concerns in certain segments, particularly auto components. “In auto ancillaries, India’s access to the US market may still be at a less competitive rate compared to Mexico and Canada,” he said, adding that further analysis is needed to assess the impact.

He also pointed out that zero-duty imports from the US and Europe will intensify competition in the domestic market. “For the first time since Independence, goods from the US and Europe will come into India at close to zero tariffs. Indian companies will now have to compete globally without tariff protection,” he said.

Cost competitiveness and structural challenges

Mukherjea said many Indian manufacturers have historically benefited from tariff protection of 10 to 20 per cent. “That protection is now being removed, and competitive intensity in the Indian market is likely to increase over the next one to two years,” he said.

He highlighted structural challenges related to cost competitiveness. “In the US and Europe, the cost of land and capital is significantly lower than in India. Unless these costs are addressed, Indian companies will struggle to compete,” Mukherjea said, adding that reducing the cost of land and capital is critical for long-term competitiveness.

Market outlook, earnings and currency dynamics

On markets, Mukherjea said the lack of a strong rally despite positive trade news reflects concerns over earnings growth. “Earnings growth in India has been weak for the past two years. Trade agreements are positive, but their impact on earnings will take time,” he said.

He added that valuations are not cheap and near-term relief rallies may be limited. “It could take two to three quarters for earnings growth to recover meaningfully,” Mukherjea said.

He also flagged currency dynamics as a key factor. “If India wants to compete globally after free trade agreements, a weaker rupee may be necessary,” he said, adding that while the trade deals are structurally positive, investors should wait for earnings recovery before turning aggressive.