Textile Report : US tariff overhang persists
Q3 marked the first full quarter to see a 50% US tariff burden (including a 25% punitive levy), materially straining margins for textile exporters. With the India -US trade deal still pending, tariff uncertainty remains a key sector al overhang. To mitigate the impact, the government took the following steps: 1 ) it temporarily removed import duty on cotton until 31 December , 2025 , 2) it announced export credit support package to support financing costs and improve credit access for MSMEs , and 3) Quality Control Order ( QCOs) on polyester yarn and viscose fibre was r emov ed to reduce input costs for value -added products and enhance global competitiveness . Diversification of markets via FTAs with key markets remains a strategic priority , offering partial but meaningful long -term relief .
Tariff shock strains India’s export competitiveness in the US: India’s textile and apparel imports into the US saw a sharp YoY contraction in October 2025 – Total apparel imports dropped 28.5%, cotton apparel 30.6%, cotton sheets 46.6 %, and towels 17.1%, driven largely by 50% US tariff . India witnessed market share erosion across most segments in October, with total apparel share down 65bps YoY and cotton apparel share down 117bps YoY, while towels remained the sole outperformer with a 48bps YoY share gain, largely at China’s expense. India’s market share in cotton sheets declin ed sharply by 1,159bps YoY, primarily ceded to Pakistan (+658 bps YoY), while in apparel, Vietnam emerged as a key beneficiary, gaining 331bps YoY in total apparel and 320bps YoY in cotton apparel amid India’s near - term share loss. Consistent with this, India’s overall apparel exports declined 12.9% YoY in October but rebounded 11.2% YoY in November, translating into a marginal QTD (Oct - Nov) decline of 1.4% YoY
Textile revenue growth to hold up in Q3FY26E despite US tariffs: Our textiles universe is likely to post a revenue growth of 10.2% YoY and 5.9% QoQ in Q3FY26E, driven by higher garment and yarn volumes. We expect Arvind (ARVND IN) to outperform peers, with revenue growth of 13.1% YoY.
Margin to remain flat YoY: In Q3FY26, average domestic cotton prices declined 4.1% YoY and 5.2% QoQ to INR 149/kg, driven by duty -free cotton imports , which led to improvement in c otton yarn spreads by 4.7% YoY /7.3% QoQ to INR 103/kg. Expect EBITDA for our Textiles universe to grow 12.8% YoY, supported by a modest 33bps YoY margin expansion to 14.3%, led by spinners, though partly offset by margin pressure from the impact of US tariff on other segments. Spinning margins are likely to improve due to lower co tton procurement costs, with Vardhman Textiles (VTEX IN) expected to report an EBITDA margin of 14.2% , an expansion of 151bps YoY . Arvind is expected to report EBITDA margin contraction of 106bps to 10.3% on account of an unfavorable base and the impact of tariff .
Long-term outlook positive; our top pick is Arvind: Although US tariffs remain a near - term overhang, India’s competitiveness is strong in the textiles sector, given robust presence across the value chain, focus on value addition, raw material availability, and relative advantage in cost of production , coupled with government initiatives to sign FTA to provide market access. Arvind is our top pick in the sector (maintain Buy with SOTP - based TP of INR 538 ).
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