Mahindra & Mahindra (M&M) shares experienced a notable decline on Tuesday, January 27, 2026, contributing to an estimated loss of ₹18,000 crore in market capitalization [cite: n/a]. This downturn coincided with the finalization of the India-European Union Free Trade Agreement (FTA), leading to concerns about increased competition in the domestic automotive market.
The India-EU FTA, hailed as a landmark trade deal, aims to reduce trade barriers and facilitate easier access to markets for both regions. A key component of the agreement involves a phased reduction of import duties on European cars, potentially intensifying competition within the Indian automotive sector. Currently, import duties on cars range from 66% to 110%. The FTA proposes to reduce these duties to 10% over five years, subject to an annual quota of 250,000 vehicles. This reduction in tariffs could make premium European cars more affordable, increasing their appeal to Indian consumers.
The immediate market reaction reflected investor apprehension regarding the competitive pressure anticipated from the FTA's automotive provisions. Analysts, including those at Goldman Sachs, foresee a direct impact on M&M's profitability, particularly from its exposure to the premium executive and luxury vehicle segments. M&M shares dropped as much as 5%, becoming the top laggard on the Nifty Auto index. Other auto stocks, including Hyundai Motor India and Maruti Suzuki India, also experienced declines.
The FTA stipulates that the import duty cuts apply to completely built unit (CBU) imports and not to completely knocked down (CKD) units. The government will gradually bring down duties to 10%, but the exact rate of annual reductions is yet to be revealed. No duty cuts will be offered for electric vehicles for the next five years.
While the FTA presents challenges, it also offers opportunities for Indian manufacturers. India's export quota for cars is reportedly 2.5 times that of the EU, with those cars getting duty-free access. Moreover, the FTA is expected to eliminate tariffs on 96.6% of European Union goods exports. For products such as machinery and electrical equipment, and aircraft and spacecraft, the tariff has been eliminated entirely.
Mahindra & Mahindra's strengths include good profit growth, revenue growth, healthy ROCE, a healthy interest coverage ratio, and an efficient cash conversion cycle. The company has also been maintaining a healthy dividend payout.
The long-term implications of the India-EU FTA on Mahindra & Mahindra remain to be seen. The company's ability to adapt to the changing competitive landscape, invest in innovation, and leverage export opportunities will be crucial in mitigating potential risks and capitalizing on new avenues for growth.
