India's FY26 apparel exports to fall 6-9%; outlook negative now: ICRA

ICRA recently revised the outlook on India’s apparel exports industry to negative from stable following the upward revision in US tariff rates and its consequent adverse impact on India’s overall apparel exports.

Lower exports and pressure on pricing is expected to contract industry operating margins by 200-300 basis points (bps) in FY26, and the impact could be steeper for entities with higher concentration on the US market.

Consequently, ICRA forecasts operating profit margins of Indian apparel exporters to compress to around 7.5 per cent in FY26 from 10 per cent in FY25 on relatively weaker operating performance in the second half (H2) of FY26 caused by contraction in volumes leading to decline in operational efficiencies.

With lower earnings and higher working capital dependance, the credit metrics are also expected to moderate, ICRA said in a note.

Apparel exports (in constant currency terms) have been largely flat in the past five years due to subdued demand in some of the key end-markets and shift in sourcing to Bangladesh and Vietnam, collectively leading to a lower offtake by customers in the United Kingdom, the United Arab Emirates, etc.

However, apparel exports to the United States, which represent a third of India’s exports, grew by 4.8 per cent during this period as Indian exporters focused on volume-led US market.

The degree of the impact will differ, depending on the product categories. For certain product specifications and price points, an immediate switchover of US orders to the lower-tariffed countries may not be amenable, both because of manufacturing capability differences and the lead time in setting up incremental capacities.

Further, countries that compete with India may also be circumspect in investing in new capacities to supply to the United States, in an environment where a tariff-based competitive advantage may not last, ICRA added.

ALCHEMPro News Desk (DS)