A recent agreement between the European Commission and India on a free trade deal could bring economic benefits to Germany. Currently, Germany has limited trade with India, but the deal aims to reduce India’s high tariffs, which average 15%, thus boosting trade relations and growth.
EU India Trade Agreement Prospects
The agreement between the EU and India is comprehensive but requires ratification on both sides to become legally binding. Unlike the stalled Mercosur trade agreement, the EU-India deal may be implemented more promptly, potentially enhancing Germany-India trade.
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We are now seeing the tangible effects of the EU-India free trade agreement that was agreed upon in principle back in 2025. The expected benefits for the German economy are moving from theory to reality, creating specific trading opportunities. This situation requires a focus on instruments sensitive to international trade flows and policy news.
Recent data from Destatis shows German exports to India in the final quarter of 2025 surged by 12% year-over-year, reaching a record €18 billion. This growth is tied to preliminary tariff reductions on certain automotive and engineering goods that were fast-tracked. The market is beginning to actively price in the full scope of the deal before the final ratification.
Impacts on Currency and Equity Markets
In the currency markets, this has increased volatility in the EUR/INR pair, which is now testing the 92.50 support level after a prolonged period in a higher range during mid-2025. We should consider using options to trade on further volatility, especially ahead of the next joint trade commission meeting in February. A move towards a stronger rupee against the euro seems to be the underlying trend.
For equity derivatives, we see value in long-dated call options on major German industrial exporters within the DAX index. Implied volatility on manufacturers like Siemens and carmakers like BMW has been rising, as they directly benefit from India’s sustained demand for capital goods. This is supported by India’s Manufacturing PMI, which consistently registered above a strong 55 reading through the end of last year.
It is also prudent to watch for any unexpected roadblocks in the final ratification process, which is not yet guaranteed. Historically, we saw similar volatility spikes in the markets during the final negotiations of the UK-India trade talks in 2024. Therefore, buying protective puts on broad European indices like the Euro Stoxx 50 could be an effective hedge against any political friction.
