Summary: India and the European Union announced a trade agreement that sharply reduces import tariffs on European cars, and Indian auto stocks moved lower on the news. Traders and investors pushed down shares of several domestic carmakers amid the change in market expectations.
On Tuesday, Mahindra and Mahindra led declines within the auto sector, sliding as much as 5.1% to levels not seen since August 2025. The stock's fall was the largest on the Nifty auto index, which itself was down 2.1% on the session.
Other major names also registered losses. Maruti Suzuki India fell by up to 2.95% during the trading day, while Tata Motors Passenger Vehicles declined 2.3%.
The terms of the trade agreement, as set out by an EU statement, call for New Delhi to lower tariffs on cars to 10% over a five-year period from rates that have been as high as 110%. The pact also includes a quota that limits imports to 250,000 vehicles per year.
The EU statement highlighted which manufacturers are expected to gain from the move, naming Volkswagen, Renault and Stellantis among the beneficiaries, along with luxury marques Mercedes-Benz and BMW. The agreement was described by the EU as a significant opening of India’s previously protected automotive sector.
Market participants reacted quickly to the announcement. The immediate fall in share prices for domestic carmakers reflected investor reassessment of competitive dynamics in the Indian market following the tariff reduction and the introduction of the import quota.
Key points
- India and the EU agreed to reduce tariffs on European cars to 10% over five years and set a 250,000-vehicle annual quota.
- Shares of major Indian automakers fell: Mahindra and Mahindra dropped as much as 5.1%, Maruti Suzuki India fell up to 2.95%, and Tata Motors Passenger Vehicles declined 2.3%; the Nifty auto index was down 2.1%.
- The EU said European manufacturers expected to benefit include Volkswagen, Renault, Stellantis, Mercedes-Benz and BMW.
Risks and uncertainties
- Short-term market volatility for Indian auto stocks, as evidenced by the intraday declines reported.
- Uncertainty over how the tariff cut and the 250,000-vehicle quota will affect competitive dynamics for domestic manufacturers.
Where the market goes from here will depend on how investors and companies interpret the pace and scope of the tariff reductions and how the quota is implemented. The announcement immediately altered price action for Indian carmakers, while the EU highlighted a set of European brands it expects will benefit from the agreement.