India Trade Deals with US and EU: 3 Winning Sectors for Smart Investors
India secured two transformative trade agreements within one week (February 2026): an EU free trade pact dubbed "the mother of all deals" and a US agreement reducing tariffs on Indian exports from 25% to 18%. Analysts identify manufacturing, pharmaceuticals, and information technology as primary beneficiaries, with India's Sensex index surging 2.5% following the US deal. The agreements position India competitively against regional rivals while unlocking estimated $500 billion in US procurement commitments.

Why These Trade Deals Matter for Global Investors Now

The India-US trade agreement announced Monday (February 2026) follows India's landmark EU free trade pact from last week. President Trump disclosed via Truth Social that India committed to halting Russian oil purchases—previously subject to additional 25% tariffs—transitioning to American and potentially Venezuelan crude. India pledged to procure $500 billion in US agricultural products, technology goods, energy, and other commodities.
European Commission President Ursula von der Leyen called the EU-India agreement "the mother of all deals," substantially reducing or eliminating tariffs across goods and services. While US-India details require further negotiation—unlike the comprehensive EU framework—investors identified manufacturing as the initial primary beneficiary, with IT and pharmaceuticals positioned for secondary gains.
James Thom, Senior Investment Director at Aberdeen Investments (UK), emphasized India's labor-intensive export sectors—textiles, apparel, leather, jewelry, toys, furniture—now possess opportunities to close competitiveness gaps against regional rivals. Thom highlighted small and medium enterprises as likely beneficiaries of the 18% tariff rate—lower than Pakistan's 19% and the 20% rates for Vietnam and Bangladesh.
Bernstein analysts suggested last week's EU agreement likely accelerated Monday's US deal, noting the arrangement aligns India with ASEAN countries—"a gradually large positive"—while strengthening India's position relative to China.

Manufacturing Sector: India's Competitive Advantage Against Regional Rivals

India's manufacturing sector emerges as the immediate winner from reduced tariff structures. The 18% US tariff rate positions Indian manufacturers favorably against regional competitors, creating cost advantages for market share expansion.
Labor-intensive export industries—textiles, apparel, leather goods, jewelry, toys, furniture—face lower barriers to US market entry than Pakistan, Vietnam, and Bangladesh competitors. This differential creates margin expansion opportunities for Indian manufacturers targeting American markets.

Aberdeen Investments analysis suggests SMEs, forming India's export economy backbone, gain particular advantage from tariff reduction. Manufacturing facilities with existing US distribution can scale rapidly, while new entrants face reduced friction entering the world's largest consumer market.
The agreements position India as an attractive alternative to Chinese manufacturing for Western companies pursuing supply chain diversification. Geopolitical considerations combined with favorable tariffs create dual incentives for procurement managers evaluating Asian partnerships.

Pharma and IT Sectors: Long-Term Growth Trajectories Strengthened

Fitch Solutions BMI spotlighted India's pharmaceutical sector, noting elimination of 11% EU import duties on medicines—including cancer treatments, biologics, GLP-1 drugs—valued at $1.2 billion in 2024. BMI projects India's pharma market will expand from $31.2 billion (2025) to $45.7 billion by 2035, representing 5.2% compound annual growth in local currency.
The EU agreement helps Indian pharmaceutical companies diversify export destinations and access larger European markets. Recent export stagnation reflects market access challenges and regulatory complexity. The free trade agreement addresses barriers by harmonizing compliance processes, reducing approval timelines, and lowering administrative costs for product registration.
Bernstein analysts Venugopal Garre and Nikhil Arela noted that while automotive and metals may face industry-specific tariffs, information technology benefits from improved bilateral relations. The IT sector maintains strongest US linkages, and although Monday's deal primarily addresses manufactured goods, improved US-India relations should reduce scrutiny of IT services and decrease risks of additional punitive measures.
Bernstein outlined a tactical "buy" strategy based on near-term recovery in Indian equities, primarily across financial, IT, and telecommunications sectors, with manufacturing and trade-related stocks "also expected to show recovery."

What Smart Investors Should Watch in India's Markets

Russ Mould, Investment Director at AJ Bell (UK), stated the trade deal improved market sentiment and provided clarity for investors, highlighting the Sensex index's 2.5% gain. The Sensex comprises 30 of the largest and most actively traded companies on the Bombay Stock Exchange.
London-listed investment trusts with India exposure ranked among top FTSE 250 gainers Monday, including Ashoka India, which rose 5.6%. Mould observed India has generated substantial returns over recent decades, but Trump's tariff regime stalled Sensex growth. Investors now question whether the deal genuinely removes constraints and revitalizes momentum, or merely triggers short-term rallies.
The trajectory depends on implementation specifics and whether the US-India arrangement achieves the comprehensive framework characterizing the EU pact. Investors evaluating India exposure should monitor sector-specific tariff schedules, particularly for automotive and metals that may retain elevated duties.

Conclusion
India's dual trade agreements with US and EU fundamentally reshape competitive dynamics for key export sectors. Manufacturing gains immediate advantages through 18% tariff positioning, pharmaceuticals access expanded European markets with eliminated import duties, IT benefits from reduced bilateral friction. While implementation details require monitoring and sector-specific tariffs may persist in automotive and metals, agreements establish India as compelling alternative to Chinese manufacturing while unlocking substantial procurement opportunities.

By Claire Whitmore 
February 04, 2026

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