India-EU trade deal impact: M&M, Hyundai, other auto stocks fall up to 4%; here's why

Auto stocks such as Mahindra & Mahindra, Hyundai Motor India and Maruti Suzuki India Ltd led the losers on the BSE Auto index on Tuesday amid concerns over heightened competition following the India-EU trade deal. 

As per the trade deal, tariffs on EU cars will be reduced in phases to 10 per cent, subject to an annual quota of 2,50,000 vehicles, making premium imports more affordable. At 1.38 pm, M&M shares were trading 4.03 per cent at Rs 3,399.70. Hyundai Motor India Ltd fell 3.22 per cent to Rs 2,191.50. Maruti Suzuki India Ltd fell 1.56 per cent to Rs 15,228. Tata Motors Passenger Vehicles Ltd also declined 1.09 per cent to Rs 340.45.

Abhishek Basumallick, Co-founder & Fund Manager at Shree Rama Managers said auto segment if duty cuts actually goes through, is probably going to see a serious disruption. He said the entry level cars for some of these luxury brands is somewhere between Rs 50 to Rs 60 lakhs.

"Now if that comes down to say Rs 30-35 lakhs, that would cannibalise the more expensive Indian SUVs that are getting sold primarily. Mahindra is doing a fairly good job. You have Kia. Maruti may not be present in that segment all that much, but other players, the Korean players, could be impacted definitely because a lot of people will then shift from the top end SUVs," Basumallick told Business Today.

Basumallick said once India has a lot more a Mercedes or BMW etc on the Indian roads, the possibilities of those companies setting up their own supply chains, their own manufacturing base here would rise in the long-term.

"So this is not going to be a very short-term play, but 5 years, 7 years later, you can see positive impact of giving market access to some of these larger luxury car players," he said.

India-EU trade relations

Emkay Global in a note said India-EU trade relations have been improving over the years, with the bilateral trade having grown nearly 40 per cent over the last 5 years. Ahead of the trade deal, Emkay Global had said the timing of the deal seems ripe, and would help both nations to diversify supply chains away from concentrated geopolitical risk. 

As of FY25, EU accounts for 17.3 per cent of India’s total exports and 8.4 per cent imports. The FY26TD exports showed a slight fall in EU’s share to 16.8 per cent. India’s export basket with the EU too has moved up the value chain with time, with high-value exports (electronics, machinery, chemicals) gaining share over traditional labor-intensive goods (textiles, jewellery, footwear). 

The import basket has been largely unchanged over a decade, led by advanced industrial inputs and hightech products (machinery, electronics, Aerospace, etc). 

"Even as India forms only 0.8 per cent EU’s export market, the deal is essential for the EU as well, amid its rapidly widening trade deficit with India— $15 billion deficit in FY25 vs $3 billion surplus in FY19—and need to diversify its trade pie away from the China+1 playbook. EU’s cut on Russian energy post-Ukraine war has shifted demand to India for refined diesel and aviation fuel, with shipments rising 68 per cent in FY25 vs FY22," it noted.

Emkay Global said Europe’s diversification of supply chains has helped Indian textile, electronics, and chemical exports to EU cumulatively nearly double since 2018. 

"Our quick assessments suggest that in case of a full-fledged and strong FTA deal, India’s goods export surplus from the EU could increase by $50 billion by FY31, with EU’s share jumping to 22-23 per cent from 17.3 per cent now. With the EU accounting for ~16% of India’s cumulative FDI and 1/3rd of India’s IT exports, the deal could offer meaningful upside to such flow," it said.