US tariffs: ICRA revises India’s apparel export outlook to Negative; operating margins to shrink 200–300 bps

The Indian apparel export sector has seen its outlook revised from Stable to Negative by rating agency ICRA, following an upward revision in US tariff rates, a move expected to dent export revenues in the coming fiscal.As per news agency ANI, ICRA stated, “Lower exports and pressure on pricing [are likely] to contract industry operating margins by 200–300 basis points in FY2026; impact could be steeper for entities with higher concentration on the US market.” The agency forecasted a 6–9 per cent drop in apparel export revenues in FY2026 if the tariffs persist, despite support from the UK Free Trade Agreement (FTA) and diversion of shipments to other markets. Operating profit margins are expected to decline to around 7.5 per cent from 10 per cent in FY2025, reflecting weaker second-half performance and reduced operational efficiency.India currently holds a modest 6 per cent share of the US apparel import market. ICRA highlighted that the impact of tariffs will vary across product categories, with some shifts of US orders to lower-tariffed countries limited by manufacturing differences and capacity-building time.

Exports to the US account for nearly one-third of total Indian apparel exports and had grown 4.8 per cent over the past five years, even as overall exports remained largely flat amid subdued global demand and a shift of sourcing to Bangladesh and Vietnam.The 50 per cent increase in US tariff rates, which are in effect from August 27, is expected to affect the competitiveness of Indian exporters. Preponement of shipments ahead of the tariff hike has cushioned revenue impact for H1 FY2026, while the UK FTA and rerouted supplies to other geographies may support FY2027 revenues. ICRA also warned that lower earnings and higher working capital dependence could moderate credit metrics for exporters.