India-EU trade deal: KPR Mill, Welspun Living stocks surge
What's the story
The India-Europe Union (EU) trade deal has sparked a rally in export-focused stocks, particularly in the textiles, pharmaceuticals, and chemicals sectors. At the time of writing, shares of KPR Mill were up 6.4% to ₹903.25 while Welspun Living was up 5% to ₹126.76. The deal, signed earlier today, could boost India's exports to the EU by some $50 billion. Currently, India's exports to the EU account for 17% of its total exports.
Market impact
Trade deal could enhance India's export competitiveness
The trade deal is expected to improve import efficiency and increase foreign direct investments (FDIs), further boosting productivity gains and tech transfers. It could also provide greater regulatory certainty, potentially benefiting IT services exports. Notably, textiles and apparel account for about 38% of India's total exports to the EU, while Indian textile imports are just 5% of the EU's total.
Market share
India poised to capture higher market share in textiles
As EU reduces tariffs on textiles to zero, India could capture a larger market share in knitwear, outerwear, and trousers from Bangladesh and Vietnam. This would benefit KPR Mills. The potential reduction of import duties on vegetable textile fibers, paper yarns, and woven fabrics could also help Indian fabric manufacturers by lowering their input costs.
Pharma prospects
Trade deal could boost India's pharmaceutical exports
India's pharmaceutical formulations exports to the EU stood at $2.95 billion, accounting for about 12% of India's total pharma formulations exports. However, India only accounts for 2.2% of the EU's total pharma imports, indicating significant growth potential. The trade deal could lead to regulatory cooperation such as accelerated marketing approvals and lower application costs for Indian generic companies in the EU market.
Growth potential
FTA to increase export volumes, improve EBITDA margins
The FTA will boost export volumes to the EU for domestic Indian manufacturers. It could also lead to more subcontract/tolling opportunities for Indian manufacturers with EU companies facing cost pressures. According to Emkay Global Financial Services, this could improve EBITDA margins by 100-400 basis points (bps) due to volume growth and effective operating leverage.