ICRA has revised its outlook on the Indian apparel export industry to Negative from Stable, following the recent hike in US tariff rates that threaten to dent revenues and margins for exporters heavily dependent on the American market.
According to the ratings agency, apparel exporters’ revenues are projected to decline by 6–9% in FY2026, despite support from the UK Free Trade Agreement (FTA) and supply diversions to other geographies. Operating profit margins are expected to contract by 200–300 basis points, slipping to around 7.5% in FY2026 from 10% in FY2025.
The impact is expected to be particularly sharp for exporters with a high concentration in the US, which accounts for nearly one-third of India’s apparel exports. The recent 50% hike in tariff rates, effective August 27, 2025, has significantly eroded India’s competitiveness in the market.
“The imposition of steep tariffs and penalties by the US is a material setback for domestic apparel exporters with high dependence on the US market. New order inflows are likely to be hit and margin pressures are imminent, even if part of the tariff burden is passed on to US importers,” said Srikumar K, Senior Vice President and Co-group Head – Corporate Ratings, ICRA Limited.
Exports to the US had grown by 4.8% over the past five years even as overall apparel exports remained flat due to subdued demand in key markets and sourcing shifts to Bangladesh and Vietnam. However, with India’s share in US apparel imports at just 6%, ICRA warned that losing market share could make recovery difficult.
Exporters may be forced to offer additional discounts to preserve business, leading to further margin pressures. While some cushion has come from pre-shipment volumes in H1 FY2026, ICRA expects a weaker H2 FY2026 performance as volume contraction hits operational efficiencies.
The industry’s credit metrics are also expected to weaken, with interest cover projected to decline to 3.0–3.2 times and total debt/OPBDITA to rise to 3.2–3.4 times in FY2026–27, compared to 4.6 times and 2.3 times, respectively, in FY2025.
On the cost side, Indian cotton yarn prices remained flat in FY2025 and may moderate further owing to a temporary duty exemption on cotton imports until December 2025. However, ICRA noted that discounts, reduced scale of operations, and ongoing capex-related debt will weigh on profitability.
While the UK FTA and diversion of supplies to other geographies may support growth in FY2027, ICRA cautioned that an early conclusion of a trade agreement with the US or a rollback in tariffs would be essential to minimise long-term disruption.
