The Indian textile sector is at an inflection point as global tariff barriers diminish; Arvind Fashion, Raymond Lifestyle top buys

The Indian textile industry is entering a decisive phase as the recent tariff easing by the US greatly improves its global competitiveness and resets the sectoral economy.The immediate reduction in US tariffs on Indian textiles from 50% to 18% has brought long-awaited relief to an industry that has been struggling with margin compression, regulatory costs and declining demand – especially in home textiles, where the market was down about 4% and smaller players were nearing closure.

The US remains India’s largest market for textile consumption, accounting for almost 28-29% of exports. Historically, Indian exporters have been excluded from the benefits of free trade agreements (FTA) as they face structural disadvantages compared to their peers.The abrupt tariff cut signals a broader shift in global trade dynamics, with protectionist measures giving way to a renewed acceptance of globalization.

Over time, the proposed FTAs ​​with the US, UK and EU could make 70-75% of India’s textile exports duty-free, materially changing the supply-demand balance in the sector.

Home textiles are expected to be the main beneficiary of this shift, supported by strong buyer relationships in the US and EU and high levels of product confidence.

Despite previous tariff headwinds, India has retained significant global market share in categories such as towels and sheets, leaving the country well-positioned to absorb the share vacated by China, which continues to face significantly higher US tariffs. Relatively lower rates and geopolitical stability strengthen its competitive advantages over other regional suppliers. Structurally, the sector is undergoing a remarkable transformation.

Man-made fibers (MMF) are steadily replacing cotton in the domestic market, opening up new growth opportunities even as China and Vietnam currently dominate this segment.

At the same time, cotton remains a strategic force for India, accounting for roughly 62% of exports, with cotton blends emerging as a key growth category. Technical textiles are also gaining popularity as a fast-growing non-wearable segment.

The easing of trade barriers is expected to trigger a new investment cycle. Export growth is likely to lead to increased domestic demand for fabrics, forward integration into the value chain and expansion of capacity in weaving and processing.

The scale-up of production is estimated to take 12 to 18 months, with many manufacturers planning additional facilities under the Make-in-India framework to meet expected demand.

Looking ahead, textile and apparel exports – currently 8% of total Indian exports – are expected to rise to 10-12%, while industrial exports are expected to grow from $36 billion to $45-50 billion over the next three years.

Thanks to the diversification across markets and segments, the sector appears well positioned for a sustainable growth phase in the medium term.

Arvind Fashion TP-700

AFL is a leading branded apparel company with a portfolio of five major brands (US Polo Assn. is the cornerstone of the portfolio) and is a leader in lifestyle and casual apparel.

Post-Covid, it exited its non-core businesses (such as Unlimited and Sephora) to focus on profitability and capital efficiency. Despite exiting the business that generated 32% of revenue in FY19, it surpassed pre-Covid-19 revenue in FY25, thanks to its powerful brands.

It has now grown into a lifestyle category, generating 15% of sales from adjacent categories. AFL’s pivot to a D2C, consignment-based FOFO model strengthens pricing discipline, inventory turns and margins, with EBO and online channels scaling rapidly and retail contribution targeted at over 50% of sales, supporting asset-light and profitable growth. We believe AFL is well positioned to deliver a CAGR of 13%/25%/32% in revenue/Pre-IND AS EBITDA/PAT over FY26-28E.

Raymond Lifestyles TP-1425

Raymond Lifestyle is positioned for a more stable growth-profitability trajectory, with domestic demand momentum intact, calibrated capacity expansion and working capital expected to normalize.

While export recovery remains gradual and beyond management’s control, domestic strength continues to anchor performance and earnings visibility. Profitability improved sharply in the third quarter, with EBITDA of INR 2.4 billion (+32% YoY; 11% faster), driven by margin expansion in key textile brands.

Gross margins increased 240 basis points and EBITDA margins increased 260 basis points year-over-year to 12.8%, supported by favorable mix and operating leverage. RLL’s recovery over FY26YTD is clearly visible, with revenue and EBITDA up 9% and 19% year-on-year respectively, after a weak FY25.

Assuming continued domestic momentum and a gradual recovery in exports, we model a ~8% revenue CAGR and ~28% EBITDA CAGR for FY25-28E, with margins reaching 12.4% in FY28.

(The author Siddhartha Khemka, Head of Research – Wealth Management, Motilal Oswal Financial Services)

(Disclaimer: Recommendations, suggestions, views and expert opinions are their own. These do not represent the views of the Economic Times)