India-US Trade Deal: Textile Stocks Rally as Tariffs Drop to 18 Percent

Indian textile stocks, including Gokaldas Exports Ltd., Welspun Living Ltd., and KPR Mill Ltd., are set to remain in the spotlight following the announcement of a significant trade agreement between India and the United States. The deal, finalized late Monday night on February 2, 2026, was confirmed by US President Donald Trump and Prime Minister Narendra Modi. This development marks a pivotal shift for the Indian textile industry, which has faced severe headwinds due to high reciprocal tariffs over the past year.

Under the terms of the new agreement, the tariff on Indian textile exports to the US will be reduced to 18 percent. This is a substantial decrease from the previous 50 percent tariff that had been imposed by the US administration. The reduction places India in a more competitive position compared to other major garment exporting hubs like Vietnam and Bangladesh, both of which currently face a 20 percent tariff rate in the American market.

Significant Reduction in Export Tariffs

The textile sector was among the hardest hit by the previous tariff regime. The US administration had initially imposed a 25 percent tariff after trade negotiations failed to meet specific deadlines. This was later increased by an additional 25 percent, bringing the total to 50 percent, as a response to India's continued purchase of Russian oil during the Russia-Ukraine conflict. The sudden hike to 50 percent was described by industry leaders as an informal embargo, severely impacting the cost competitiveness of Indian goods.

With the new 18 percent rate, Indian exporters now enjoy a 200-basis-point advantage over their primary competitors, Vietnam and Bangladesh. Analysts suggest that this could lead to a significant shift in market share. Currently, India holds only a 6 percent share of the US readymade garment import market, while Vietnam and Bangladesh hold 19 percent and 9 percent respectively. The lower tariff structure is expected to help India bridge this gap in the coming quarters.

Impact on Major Textile Exporters

Many leading Indian textile firms derive a massive portion of their revenue from the United States. For these companies, the US is not just a market but the primary driver of their topline growth. The high tariffs had previously squeezed export margins into single digits, forcing companies to share the tax burden with their American clients to maintain order volumes.

As shown in the table above, companies like Gokaldas Exports and Indo Count Industries are particularly sensitive to US trade policy changes. The 18 percent tariff is expected to provide immediate relief to their bottom lines and improve their pricing power with US retailers.

Management Outlook and Order Book Strength

Despite the tariff challenges of the past year, the underlying demand for Indian textiles has remained resilient. Sivaramakrishnan Ganapathi, Vice Chairman and Managing Director of Gokaldas Exports, recently noted that the company's US order book pipeline remains strong through the first quarter of financial year 2027. He indicated that orders for the second quarter are also beginning to materialize, suggesting that US buyers remain committed to Indian suppliers despite the previous cost pressures.

To mitigate the impact of the 50 percent tariffs, several Indian firms had already begun diversifying their manufacturing footprints. Gokaldas Exports, for instance, has been investing in facilities in Ethiopia and Kenya to take advantage of lower tariff structures in those regions. The company also pursued a merger with BRFL Textiles to secure a more stable and low-cost fabric supply chain.

Competitive Advantage Over Regional Peers

The new trade deal fundamentally alters the competitive landscape in the global apparel trade. For the first time in recent years, India will have a lower effective tariff rate than its immediate neighbors. This is a critical development for a sector that operates on thin margins and high volumes.

This disparity is expected to protect India's position as a top-three textile supplier to the US, a market valued at approximately $10.3 billion. Trade estimates suggest that nearly 55 percent of India's textile shipments to the US were directly impacted by the previous high duties, and the reversal could spark a 40 to 50 percent recovery in export volumes.

Market Reaction and Stock Performance

The market reaction to the trade deal has been overwhelmingly positive, providing a much-needed rebound for stocks that had corrected sharply. In the month leading up to the deal, Gokaldas Exports had declined by 17 percent, while Indo Count Industries and Welspun Living fell by 14 percent and 6 percent respectively. The announcement has reversed this trend, with several textile counters gaining between 6 percent and 15 percent in early trade following the news.

Investors are also looking at the broader implications of the deal. The agreement reportedly involves India reducing its oil imports from Russia in exchange for lower tariffs on textiles and shrimp. Additionally, India may allow increased imports of American corn and soymeal, signaling a broader de-escalation of trade tensions between the two nations.

Market Impact

The reduction in tariffs is expected to lead to a significant expansion in operating margins for export-oriented textile units. With the US accounting for 50 to 70 percent of revenue for major players, the 32 percent reduction in duties (from 50 percent to 18 percent) will likely be shared between the manufacturers and the end customers, leading to both higher volumes and better profitability. Furthermore, the deal removes the cloud of uncertainty that has hung over the sector, potentially leading to a re-rating of these stocks as earnings visibility improves for FY27.

Analysis Section

This trade deal is a strategic victory for the Indian textile industry. By securing a tariff rate lower than Vietnam and Bangladesh, India has effectively neutralized the cost disadvantage that has plagued its exporters for years. The timing is also crucial, as it coincides with a period where global retailers are looking to diversify their supply chains away from China. The inclusion of IT and shrimp sectors in the broader trade discussions further suggests that the India-US partnership is moving toward a more stable, long-term economic framework. For investors, the focus will now shift from tariff concerns to execution and capacity utilization as companies prepare to meet the anticipated surge in US demand.

Conclusion

The India-US trade deal marks the end of a challenging period for the textile sector. The reduction of tariffs to 18 percent provides a clear path for revenue growth and margin recovery for companies like Gokaldas Exports and Welspun Living. As the industry moves forward, the focus will remain on upcoming quarterly results and the formal implementation of the agreement. With a strong order book and a newfound competitive edge, the Indian textile sector is well-positioned to regain its momentum in the global market.