📰India-EU Trade Deal Expected By Year-End, Trade Deficit Narrows, Aviation Insurance Usurped

Good afternoon, 

Welcome to the best way to stay up-to-date on India’s financial markets. Today, we’re discussing

• India expects to finalize a free trade agreement with the EU by year-end,

• India’s merchandise trade deficit shrank to $21.88 billion (₹1.9 trillion),

• and India’s deadliest aviation crash in over a decade is about to trigger one of the largest insurance claims in India’s history.

Then, we close with Gupshup, a round-up of the most important headlines.

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—Shreyas, [email protected]

Market Update.

India Eyes EU Trade Deal by Year-End.

India expects to finalize a comprehensive free trade agreement with the European Union by the end of this year, Prime Minister Narendra Modi said on Monday during an official visit to Cyprus. The statement marks a renewed push in India's efforts to strengthen trade ties with Europe amid global supply chain shifts and geopolitical uncertainty.

We are working on finalising a mutually beneficial India-EU trade agreement by the end of this year,” Modi said during joint remarks with Cypriot President Nikos Christodoulides in Nicosia. Modi emphasized the “unlimited possibilities” in expanding cooperation with Cyprus, which is seen as a strategic entry point to the European market.

Christodoulides pledged support for the deal and confirmed that advancing EU-India relations would be a top priority when Cyprus assumes the EU presidency in early 2026. “A strengthening of EU-India relations will be among the priorities of the Cypriot EU presidency,” he said.

Modi's visit also spotlighted the proposed India-Middle East-Europe Economic Corridor, a rail and maritime trade route linking India to Europe via the Gulf and Eastern Mediterranean. “We agree the India-Middle East-Europe Corridor will pave the way for peace and prosperity in the region,” Modi added, despite ongoing instability in the Middle East.

Cyprus, a member of the Commonwealth and long-time diplomatic partner of India, is offering port infrastructure and logistical support as part of the corridor initiative. With India looking to diversify trade routes and reduce overreliance on traditional partners, Cyprus could play a key role as a transshipment and investment hub.

The India-EU trade deal has been under negotiation for over a decade. A final agreement could significantly boost trade volumes, investment flows, and strategic cooperation between the two major economies.

India’s Trade Deficit Narrows in May as Exports Rise, Imports Ease.

India’s merchandise trade deficit shrank to $21.88 billion (₹1.9 trillion) in May, down from $26.42 billion (₹2.3 trillion) in April and lower than the $25 billion (₹2.1 trillion) forecast by economists, official data released on Monday showed. While both exports and imports declined year-over-year, the narrower deficit provides some relief to policymakers amid intensifying global economic and geopolitical pressures.

Imports dropped 1.7 percent to $60.61 billion (₹5.2 trillion), driven by lower oil and gold inflows, while exports fell 2.2 percent to $38.73 billion (₹3.3 trillion), with outbound shipments of electronic goods and pharmaceuticals showing resilience. Despite the decline, the improved trade gap may help ease pressure on the rupee and support India’s current account position.

However, the data also points to a potential softening of domestic and global demand. Economists have flagged concerns that falling imports could signal waning momentum in India’s post-pandemic recovery, even as recent GDP numbers showed better-than-expected growth for FY2024- 25.

Geopolitical tensions, particularly the recent escalation between Israel and Iran, are compounding risks. Crude oil prices have spiked, pushing up shipping costs and threatening to inflate India’s import bill further. The Indian government is monitoring developments closely, Commerce Secretary Sunil Barthwal said.

At the same time, India is actively pursuing trade agreements to diversify markets and reduce exposure to external shocks. Talks with the United States are underway, with an early agreement expected by July 9, and negotiations have begun with New Zealand, Peru, and Chile.

Furthermore, Barthwal emphasized that India is performing well despite geopolitical and policy challenges. “We are doing much better than the rest of the world,” he said, adding that India continues to expand into new markets while accelerating trade talks with the EU and U.S. to mitigate risk and boost resilience.

Air India Crash May Reshape the Aviation Insurance Market.

India’s deadliest aviation disaster in over a decade, the crash of Air India Flight 171 in Ahmedabad, is poised to trigger one of the largest insurance claims in the country’s history, estimated at around $475 million (₹40.8 billion). The tragic incident, which killed 241 people and others on the ground, is expected to have wide-ranging financial repercussions across the global aviation insurance market.

According to Ramaswamy Narayanan, chairman of General Insurance Corporation of India, approximately $125 million (₹10.7 billion) of the claim will go toward the aircraft hull and engine. Liability claims, mostly related to loss of life, are projected to reach $350 million (₹30.1 billion), with total payouts likely to climb further due to foreign nationals on board whose claims will follow international jurisdiction standards.

The size of this claim is more than triple India’s total annual aviation insurance premium in 2023. Domestic insurers are expected to face limited direct exposure, having ceded over 95 percent of their aviation premiums to international reinsurers. Still, the event is expected to harden both global and domestic aviation insurance markets, pushing up premiums for Indian carriers at upcoming renewal cycles.

Experts believe this could mark a turning point for India’s aviation insurance landscape. “The financial burden will predominantly fall on international reinsurers, leading to the hardening of the aviation reinsurance and insurance market,” said Swarup Kumar Sahoor of GlobalData. Liability claims, meanwhile, could take months or years to fully resolve.

The crash has sparked criticism of Air India’s safety standards and drawn attention to the financial vulnerabilities of insurers and airlines navigating increasingly risky skies.

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Gupshup.

Macro

• India’s central bank has informally consulted bond traders to gauge acceptable short-term borrowing costs after a bond market selloff, amid concerns it may tighten liquidity following a shift to a neutral policy stance. Traders warned the RBI against moves that could overly disrupt market conditions, as overnight borrowing rates continue to sit below the policy rate.

• The Indian rupee showed resilience despite recent Middle East tensions driving up oil prices. Although the rupee weakened alongside other Asian currencies last week, experts like Mitsubishi UFJ Financial Group expect it to strengthen to 84 per dollar by the October-December quarter, supported by India’s low domestic inflation and a manageable trade deficit.

• Freight rates for Russian oil shipments from Baltic ports to India have eased recently due to increased tanker availability, but may rise again if the EU enforces a lower $45-per-barrel price cap (₹3,870). This follows the current $60 cap (₹5,160), which has allowed Western shipowners to resume shipping Russian crude as prices stabilized below that threshold.

• India’s wholesale inflation slowed to 0.39 percent year-on-year in May, the lowest in over a year. This decline reflects easing price pressures across food, manufactured products, and fuel, contributing to the lowest retail inflation in more than six years.

• India’s unemployment rate rose to 5.6 percent in May, up from 5.1 percent in April, partly due to reduced farm activity following the harvest season. This increase affected both urban and rural areas, with urban youth unemployment reaching 17.9 percent, reflecting a shift from agriculture to manufacturing and services in rural employment.

• Indian bonds and the rupee are expected to track crude oil price movements amid rising Israel-Iran tensions, with Brent crude initially spiking above $78 (₹6,708) before retreating. The Reserve Bank of India's intervention will be key to limiting rupee volatility, after it likely stepped in Friday following the currency’s sharpest drop in over a month.

Equities

• Sika AG sees significant growth potential in India, expecting its market there to nearly double in the next decade. CEO Thomas Hasler highlights India's tax reforms and infrastructure focus as key drivers that could boost Sika’s revenue from 3-4 percent to double digits over 10 years.

• Airbus said the recent Air India crash should serve as a learning moment to improve industry-wide safety rather than a competitive advantage. The accident highlights that despite aviation’s strong safety record, every incident is a critical reminder of potential risks in air travel.

• Zee Entertainment approved a $261 million (₹22.4 billion) fundraise by issuing fully convertible warrants to select shareholders. This move aims to strengthen its core business and boost digital growth after challenges from last year’s failed merger with Sony’s Indian assets.

• Reliance Industries sold shares worth $218 million (₹18.7 billion) in Asian Paints, reducing its stake further through a bulk deal with ICICI Prudential Life Mutual Fund. This follows an even larger recent sale, bringing Reliance’s stake down to 0.9 percent, as Asian Paints faces antitrust scrutiny and increased competition.

• IndiGo’s top shareholder, InterGlobe Enterprises, denied media reports claiming it plans to sell a 4 percent stake worth about $1 billion (₹86 billion). The company reaffirmed its commitment to IndiGo’s long-term plans.

• Japan’s ASICS plans to increase local production in India from 30 percent to 40 percent in response to new import restrictions requiring quality certifications. The move aims to ensure supply continuity and support the brand’s retail expansion, including its first company-owned store.

Alts

• Fugitive diamond tycoon Mehul Choksi has accused the Indian government of abducting and torturing him in 2021 to extract a false confession in a $1.5 billion (₹129 billion) fraud case, filing a UK lawsuit to block his extradition from Belgium. India denies involvement and argues the UK lacks jurisdiction.

• Nepal has started exporting 40 MW of electricity to Bangladesh via India’s power grid, marking its first international energy export and highlighting India’s role in regional electricity trade. This move, under a tripartite agreement, also includes Nepal exporting 80 MW to India’s Bihar state, opening access to a 5,000 MW export market.

Policy

• India has launched urgent safety inspections of all Air India Boeing 787 Dreamliners following a fatal crash that killed 241 people. These two-week checks on key systems aim to prevent further incidents amid ongoing investigations and possible flight delays.

• Indian tax authorities are cracking down on unreported cryptocurrency transactions, targeting “high-risk persons” suspected of tax evasion and money laundering. The Central Board of Direct Taxes has identified many individuals and entities avoiding the 30 percent flat tax on virtual digital asset income and has sent emails to thousands believed to be in default.

• India and Canada are setting up a new intelligence-sharing framework to address cross-border crimes, including terrorism, as part of efforts to repair strained ties since 2023. This will boost cooperation between law enforcement on transnational crime and extra-judicial killings, signaling a key step in resetting their relationship

See you Tuesday.

Written by Eshaan Chanda & Yash Tibrewal. Edited by Shreyas Sinha.

Disclaimer: This is not financial advice or recommendation for any investment. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.