The Indian textile sector is entering a phase of recovery and renewed optimism as the uncertainty surrounding US tariffs recedes and global demand begins to improve, according to a report by Dolat Capital.
Worst Behind for the Sector
The report stated that the "worst is behind" for the sector and highlighted improving industry fundamentals, better demand visibility, and favourable policy developments. "The sector, in our opinion, is now entering a phase of renewed optimism, supported by the resolution of US tariff-related uncertainties, improving demand visibility, and a series of strategic Free Trade Agreements (FTAs) that are strengthening India's position in global sourcing chains," the report said.
US Tariff Normalization
A major turning point came in late February 2026 when US tariffs on Indian textile products were normalized to 10 per cent after touching as high as 50 per cent. "The ending of US reciprocal and penalty tariffs has brought significant relief to the Indian textile sector, normalizing trade and leading to volume stabilization," it said. The removal of punitive duties, which had pushed total charges on Indian garments to as much as 65-69 per cent, has restored global competitiveness for Indian exports and unleashed pent-up demand in the US market.
Improved Industry Fundamentals
Industry fundamentals have also improved considerably, aided by capacity consolidation in spinning, restoration of cotton cost competitiveness, and stronger yarn spreads. "Industry fundamentals have improved meaningfully, aided by capacity consolidation in the spinning segment, restoration of cotton cost competitiveness, and a sharp recovery in yarn spreads, driving better profitability across the value chain," the report added.
Free Trade Agreements Boost Prospects
The brokerage further said that anticipated and recently signed FTAs with key markets such as the UK, EU, and Australia are expected to provide structural support to the industry. "Global buyers are actively looking to diversify their supply chains away from over-dependence on duty-free nations like Bangladesh and Cambodia, making India a highly attractive, long-term sourcing alternative," it said.
Demand Recovery in US Market
On the demand front, the report observed that the US market is showing resilience despite macroeconomic volatility. "As of early Q1FY27, demand has stabilized and shows robust resilience despite inflationary pressures and macroeconomic volatility," it said. The report also highlighted improving conditions in the yarn segment, stating that "the demand for yarn has seen a strong resurgence in both domestic and international markets."
Sustainable Growth Outlook
Looking ahead, Dolat Capital believes the sector is well positioned for sustainable growth despite challenges from geopolitical disruptions and higher crude-linked input costs. "Robust domestic demand, disciplined capital allocation, and deleveraging efforts continue to provide resilience, positioning the sector for a stronger and more sustainable growth trajectory," the report said. However, it cautioned investors to monitor the persistence of US tariffs, cotton price volatility, delays in offshore capacity ramp-ups, and any softness in US retail demand.
