January 27 (Reuters) — Indian shares closed higher on Tuesday following a volatile trading session, buoyed by the signing of a landmark trade agreement with the European Union that eliminates tariffs on 90% of Indian goods.
The Nifty 50 index rose 0.51% to 25,175.4, while the BSE Sensex gained 0.39% to close at 81,857.48. Market volatility, measured by the VIX index, surged to a seven-month high amid concerns over U.S. tariff policies and anticipation ahead of India’s upcoming federal budget, scheduled for February 1. Eleven of the sixteen major sectors recorded gains, with small-cap and mid-cap indices rising 0.4% and 0.6%, respectively.
The trade deal, which has been long awaited, will see India reducing or eliminating tariffs on 96.6% of traded goods, while the European Union will cut tariffs on 99.5% of its traded goods over a seven-year period.
Ravi Singh, Chief Research Officer at Master Capital Services, commented, “The deal will potentially diversify India’s trade base, accelerate sectoral growth, and boost global investor confidence by signaling policy stability and deeper integration into global value chains. Overall, it’s a positive development for trade, investment, and the Indian stock market.”
Auto Sector Under Pressure
Despite the overall positive sentiment, auto stocks declined, with the Nifty Auto index falling 0.9%. Tariffs on cars imported from the EU will be cut significantly over five years, benefiting European automakers such as Volkswagen, Renault, Mercedes-Benz, and BMW.
Mahindra & Mahindra dropped 4.2%, while Maruti Suzuki India and Tata Motors Passenger Vehicle declined 1.5% and 1.1%, respectively. Bhavik Joshi, Business Head at INVasset, noted, “The near-term pressure is less about volume and more about perception and pricing power in the premium segment of the auto market.”
Metal and Banking Stocks Climb
Shares of metal companies gained momentum, with the Nifty Metal index rising 3.1%, driven by strong quarterly results from JSW Steel and higher base metal prices. Adani Group stocks reversed some of their recent losses after Friday’s selloff.
In the banking sector, Axis Bank surged 4.6%, and UltraTech Cement rose 1.8%, both buoyed by solid quarterly earnings. Conversely, Kotak Mahindra Bank fell 3.3% after missing profit estimates.
Market analysts remain watchful ahead of the upcoming budget, with the EU trade deal providing a boost to investor sentiment amid ongoing global economic uncertainties.