Impact of India and the European Union Free Trade Agreement on the Indian Stock Market: Boon for Investors or Bane for their Investments

Author(s): Dr. Himanshu, Arpita Kalra, Vaibhav Khanna, Priya Kumari, Lakshay Garg

Abstract:

Purpose: This research study examines the market impact of the free trade agreement between the European Union and India, signed on January 27, 2026. This study analyzes the abnormal returns on the different sectors, which are part of India’s leading index, i.e., NIFTY50, like retail, automobiles, pharmaceuticals, banking and financial services, logistics, infrastructure, telecom, FMCG, power and utilities, oil, gas & energy, cement and construction material, information technology, and metal & mining. Methodology/Approach: This research study used quantitative research with an event study approach, using purposive sampling as a sampling technique. The hypothesis test using the abnormal returns of all NIFTY50 companies was performed using statistical testing methods. In which daily returns are calculated by stock prices, and abnormal returns are calculated by subtracting expected returns from company returns. Then, the sector-wise Average Abnormal Return (AAR) is calculated by averaging the daily abnormal returns of companies. Finally, the t-test is applied to find the significance of cumulative average abnormal returns (CAAR) by comparing critical t- values, and to understand the dependency of the dependent factor (stock return) on the independent factor (market return), linear regression analysis is performed and visualized. Findings: This result showed that there was an impact on sectors such as power and utilities, metal and mining, logistics, retail, cement and construction material, oil, gas & energy, and information technology (IT). Novelty/ Value: This test result is important to show how an international trade deal affects stock markets across sectors.

Keywords: Event Study, Free Trade Agreement (FTA), Abnormal Returns, Regression

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