Whalesbook
EU Trade Deal Nears Completion, Offering Economic Uplift
India's trade negotiations with the European Union are in advanced stages, with expectations of a comprehensive agreement soon. This development is being hailed as a more immediate and significant positive for the Indian economy compared to the ongoing, protracted trade discussions with the United States. Mukul Kochhar, Head of Equities at Investec Capital Services, highlighted that the EU is a larger trade partner, presenting substantial opportunities, particularly for the vital textile industry [cite: A]. The EU FTA could potentially boost India's apparel exports by an estimated 20-25% over the next three years and help narrow the competitive gap with countries like Bangladesh, Vietnam, and Turkey, which currently benefit from preferential trade arrangements. The EU's imports of textiles and apparel amount to approximately $125 billion annually, with India currently holding a 5-6% share. The agreement is expected to reduce or eliminate import duties, making Indian products more price-competitive in the European market.
India-US Trade Pact Faces Persistent Hurdles
In contrast to the progress with the EU, the trade deal negotiations between India and the United States are described as complicated and currently stalled [cite: A]. While US President Donald Trump has expressed confidence in reaching a "good deal" and praised Prime Minister Narendra Modi, citing "great respect" and a "great friend" relationship, the path forward remains uncertain. Reports indicate ongoing disagreements over tariffs, agricultural access, and digital trade rules. The US has imposed significant tariffs, reportedly around 50% on Indian goods, while India recently implemented a 30% tariff on US pulses. Despite these complexities, both nations have reiterated their commitment to ongoing negotiations.
Analyst Sees Near-Term Positives for Current Account and Rupee
Kochhar indicated that the advancements in the EU trade deal are expected to provide incremental support to India's current account and, consequently, the Indian rupee, marking it as a near-term positive for the economy [cite: A]. Investec's calculations suggested India's current account was likely neutral to positive in November and December 2025 [cite: A]. Recent data shows India's current account deficit moderated to $12.3 billion, or 1.3% of GDP, in the July-September 2025 quarter, down from $20.8 billion (2.2% of GDP) a year ago, aided by a narrowing merchandise trade deficit and robust remittances. However, projections for Q3 FY26 suggest a potential widening due to increased imports, though overall FY26 CAD is expected to remain manageable.
Market Sentiment and Gold's Speculative Surge
Investor positioning on India is currently characterized as "super bearish" and "one-sided," according to Kochhar, who views this extreme pessimism as a potential contrarian signal to examine contradicting data points [cite: A]. On the precious metals front, the rally in gold and silver is attributed to a global trend of central banks diversifying reserves away from traditional currencies into gold. Central banks have been accumulating gold at record levels, seeking diversification and hedges against geopolitical risks and currency debasement. However, Kochhar expressed caution, questioning the sustainability of assets without underlying cash flows, deeming the current gold buying largely speculative [cite: A].
Textile Sector Poised for Growth Amidst Trade Dynamics
The textile sector stands to be a significant beneficiary of the progressing India-EU Free Trade Agreement (FTA). Current import duties on Indian apparel products in the EU range from 8% to 12%, which places Indian exporters at a disadvantage compared to competitors like Bangladesh and Vietnam. The FTA is anticipated to level the playing field by reducing or eliminating these tariffs, thereby enhancing the price competitiveness and market access for Indian textile and garment manufacturers in premium European markets. This could foster long-term investments in the textile value chain and strengthen India's global standing in the sector.