Escalations in recent conflict in West Asia and non-extension of export incentives could pose a downside risk to Icra estimates on revenues and margins
With the reduction in overall tariffs and expected opportunities from the free trade agreements (FTA) signings, the revenues of apparel exporters to increase by 8 to 11 per cent on a year-on-year (YoY) in the next financial year (FY27).
A report by Icra stated that the margins are likely to recover by approximately 200 basis points to around 9.5 per cent in FY27. However, escalations in recent conflict in West Asia and non-extension of export incentives could pose a downside risk to Icra estimates on revenues and margins.
The ongoing conflict in West Asia is a key headwind for Indian apparel exporters. Around 8 per cent of the overall apparel exports from India are to the United Arab Emirates region and the share has been largely range-bound over the last few years. Shipments through the Strait of Hormuz have been affected and there has been some rerouting, resulting in additional logistics costs and elongation of the cash conversion cycle, the report noted.
“Players in the manmade fibre segment are affected. With a sharp rise in oil prices, the supply of mono ethylene glycol (MEG) and purified trephthalic acid (PTA), which are the key inputs for producing polyester fibres, have been disrupted,” Icra noted.
While the players could see some inventory gains (with the general inventory holding period being 1-1.5 months) in the near term, a prolonged conflict could result in non-availability of these inputs apart from a likely increase in their prices, consequently impacting the profit margins, Icra pointed out.
Apparel Exports Outlook
Icra emphasised that the outlook on the Indian apparel sector was revised to negative in September 2025, with an estimated 6 to 9 per cent decline in industry revenues in FY26 and a further decline in FY27, had the elevated tariff regime persisted.
With the reduction in tariff rates and the depreciation of the INR against the USD, the extent of the decline is now forecast at a more moderate 3 to 5 per cent level. India’s apparel exports stood at USD 16.3 billion in CY2025 and contribute to less than 4 per cent of the global trade.
“Post Covid, India was becoming one of the preferred sourcing options, given its strengths like integrated textile value chains, supportive policy reforms and a strong raw material base,” Icra added. However, the imposition of elevated tariffs (50 per cent) by the US, a country that accounts for one-third of India’s exports, halted the progress and pushed Indian exporters into making the uncomfortable choice between sustaining or growing volumes versus maintaining margins, not both.
Given the steep rise in tariffs, exporters were at a disadvantageous position and were constrained to offer discounts in the range of 5 to 15 per cent between September 2025 and January 2026. There were concerns on order deferrals as well for the upcoming season. However, a downward reset in tariffs to 10 per cent during February 2026 supports a revival of India apparel exporters, it said.
India-EU Deal
The signing of the India-EU deal in January 2026 (which brings down the duty rates to nil) is structurally positive for the Indian textile industry, within which apparels and home textiles are the key beneficiaries. The report noted that this deal places Indian exports on a par with competing nations, thus providing a level-playing field.
Nearly a fourth of the exports from India go to the EU, which were largely flattish in recent years owing to sluggish retail demand, inflationary pressures, vendor diversification etc, as per the report. The EU’s import dependence on India has also been historically low (at less than 5 per cent) with China, Bangladesh, Turkey and Vietnam leading the pack. Factors such as preferential access, lower tariffs etc in these countries have kept Indian exporters at a disadvantageous position
