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US Tariff Cut To 18% To Aid Apparel Exports; Margins Seen Recovering To 9.5% In FY27: ICRA
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Operating profit margins, which are likely to compress to around 7.7 per cent in FY26, are projected to recover to about 9.5 per cent in FY27 as tariff pressures ease, ICRA says.
India’s apparel exports stood at $16 billion in FY25, with the US accounting for nearly one-third of shipments.
The reduction in US reciprocal tariffs on Indian goods to 18 per cent from 25 per cent is expected to support apparel exporters, with operating profit margins likely to recover to around 9.5 per cent in FY27, said ratings agency ICRA on Wednesday.
Following the tariff reset and elimination of the additional 25 per cent ad valorem duty imposed in August 2025, ICRA has revised its outlook on the Indian apparel (exports) sector to ‘Stable’ from ‘Negative’. However, it has retained a Negative outlook on the cut and polished diamonds segment.
“India’s apparel exports stood at $16 billion in FY25, with the US accounting for nearly one-third of shipments. While export revenues are projected to decline 3-5 per cent in FY26, the contraction is expected to be milder than earlier estimates, with revenues seen rebounding 8-11 per cent in FY27,” ICRA stated.
Operating profit margins, which are likely to compress to around 7.7 per cent in FY26, are projected to recover to about 9.5 per cent in FY27 as tariff pressures ease and buyer contracts are renegotiated, it added.
Jitin Makkar, senior vice-president and group head, corporate ratings, ICRA Ltd, said, “The sharp increase in US tariffs last year had been particularly debilitating for export-oriented companies in sectors such as textiles, cut and polished diamonds and leather and leather products.”
He added that apparel exporters, for instance, saw their margins compress by nearly 200 basis points over the past couple of quarters as they were compelled to extend discounts to US buyers to retain volume share.
On the broader outlook, he said, “Against this backdrop, the lowering of US tariffs, as a prelude to the formal signing of the US-India trade agreement in due course, as also the anticipated implementation of the India-EU free trade agreement next year, besides other bilateral trade pacts, augur well for a gradual strengthening of India’s manufacturing export growth over the medium term.”
Meanwhile, ICRA retained a Negative outlook on cut and polished diamonds despite the potential removal of tariffs under the proposed Interim Agreement. The segment continues to face structural headwinds from rising acceptance of lab-grown diamonds and pricing pressures.
Diamond exports, which peaked at $24 billion in FY22, are projected at around $12 billion in FY26, though some improvement is expected in FY27.
Over the longer term, ICRA expects exporters to increasingly pursue geographical diversification and overseas manufacturing to mitigate risks from trade volatility.
February 11, 2026, 11:23 IST
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