Big thanks to Donald Trump; without his efforts, this deal would have happened. He deserves a Nobel Prize for this deal with India. His threats brought enemies to friendship.
Investors are clueless, and brokers in the market are not happy with the deal. They expected a huge spike in the market. Well, instant gratification has now got into market returns too. Many are thinking that these deals will take time to materialise into profitability. But what we are failing to understand is that in every step, industrial consumption and service demand grow in India. The India–EU FTA integrates a 1.9+ billion consumer market, covers ~25% of global GDP, and delivers the largest tariff liberalisation India has ever offered to a trade partner.
The India–EU FTA is not a
one-quarter story. It is a decade-long structural tailwind that
strengthens India’s export ecosystem, enhances global competitiveness, and
accelerates scale-up for companies. This deal opens up the gate for the
struggling demand creation opportunity that India was facing for long, and the
same was felt harder by Midcap and small-cap companies and stocks.
The long term story of Midcap and
small-cap stock picks has become stable based on the demand creation opportunity.
At the same time, Indian manufacturers are open to getting challenges to
improve investments in their own sectors, which they were not doing till today.
Many Indian companies across sectors will not be compelled to come out of their
comfort zone and have to invest rather than just being dependent on government capex,
subsidies, and tax rebates.
Profitability Boost for Midcap
and Small Cap Through the Deal
Mid-cap manufacturers and MSMEs
are particularly well positioned to capitalise on this shift. Compared to large
corporates, they tend to be more agile, faster in execution, and more willing
to recalibrate product mixes and processes to meet European requirements. As
export orders scale, incremental volumes flow through largely fixed cost
structures, driving operating leverage. Higher throughput improves asset turns,
while better pricing power and efficiency support margin expansion. Over time,
this combination translates into sustained improvements in return on capital
employed (ROCE), a critical determinant of long-term valuation re-rating for
mid-sized industrial companies. Its huge boon for the segment in the long term.
Midcap and small-cap stocks, often more nimble
and export-oriented than large-caps, stand to gain disproportionately from
enhanced EU market access. These companies, many in labour-intensive or niche
manufacturing, can scale up production, improve margins via lower duties, and
capture higher-value European demand. Market sentiment post-announcement has
shown optimism in export-linked themes, with broader indices rising and
mid/smallcap indices gaining around 0.8% in initial reactions (despite some
sector-specific pressures like autos from reciprocal concessions).
The Free Trade Agreement (FTA)
fundamentally alters the opportunity set for Indian enterprises by creating a
direct and durable pipeline to high-value European consumers. . With tariff
certainty and clearer market access, firms are incentivised to commit capital
with greater confidence, accelerating capacity expansion, investing in
technology upgrades, and undertaking compliance-driven modernisation across ESG
standards, quality systems, and traceability frameworks. These investments are
not merely defensive; they enhance long-term competitiveness and embed Indian
manufacturers deeper into global value chains. The agreement unlocks
predictable access across 144 European Union sub-sectors, providing clarity and
continuity that services firms have historically lacked. IT services and
digital platforms gain easier cross-border delivery and client acquisition, while
engineering and design services benefit from closer integration with European
manufacturing and infrastructure ecosystems.
For mid-sized IT and professional
services firms, this diversification reduces dependence on any single geography
and smooths revenue cycles. Greater predictability improves order books,
enhances cash flow visibility, and lowers earnings volatility.
In aggregate, the FTA acts not just as a trade
enabler but as a catalyst for structural upgrading—pushing Indian mid-caps and
MSMEs toward higher productivity, stronger returns, and more resilient growth
trajectories.
Export orders are materialising,
capacity utilisation is improving, and FTA-led earnings upgrades are emerging
across midcap and small-cap companies.
For mid-caps and small-caps, tariff elimination often determines whether
they can enter a market at all.
- Zero-duty access levels the playing field against
entrenched EU suppliers
- Price competitiveness improves immediately without
sacrificing margins
- Smaller firms can now bid for EU contracts
previously out of reach
This is particularly powerful for
engineering goods, auto ancillaries, industrial components, speciality
chemicals, and textiles, where India already has cost and capability
advantages.
Furthermore,r the FTA includes assured
post-study visa frameworks of at least 9 months, improving talent mobility
and skill circulation.
This supports:
- Knowledge transfer back to Indian firms
- Creation of EU-facing delivery teams
- Higher value-added services exports
Small and mid-cap firms often
struggle with global talent access—this agreement reduces that friction
materially.
A unique feature of the agreement
is access for Indian traditional medicine practitioners under home-country
titles.
This opens niche, high-margin
opportunities in:
- Ayurveda and wellness products
- Herbal formulations
- Natural healthcare exports
Many of these businesses sit
squarely in the small-cap and emerging mid-cap universe, where IP,
branding, and early-mover advantage can compound over time.
Why Markets Will Reprice This
Slowly? They undervalue structural shifts that take time to translate
into order books, capacity additions, and margin expansion. The economic
benefits do not appear instantly in quarterly numbers. Instead, they emerge
sequentially—first through inquiry pipelines and export wins, then through
rising capacity utilisation, and finally through sustained earnings upgrades.
Until this progression becomes
evident in reported results, markets tend to remain sceptical or indifferent.
Hence, it's time to invest in midcaps and small caps, since there is a catch
here that many of us will ignore. There are many midcap and small-cap companies
that are positioned well to take advantage of the gains from this trade deal
from day 1 going forward. That’s the hidden gem where the growth will reflect. It's
time to invest and create a portfolio that creates long-term wealth from small-cap
and mid-cap investments, but don’t be impatient. This will accelerate GDP investments and gross capital formation for India and will uplift the per capita income of India in the coming years. Further, stay tuned for the Budget session, which begins tomorrow.
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