India’s textile and apparel industry has emerged from one of the most turbulent periods in its recent history, transforming a combination of global disruptions into the foundation of a new growth cycle. According to Wazir Advisors’ sector pulse report tracking earnings discussions across 13 leading listed textile and apparel companies, the fourth quarter of FY26 subjected manufacturers to an extraordinary combination of challenges: a temporary 50 per cent US tariff regime, a geopolitical crisis in West Asia that sharply escalated energy costs, and a steep increase in raw cotton prices.

The cumulative impact initially pushed factory utilization levels down to nearly 50-60 per cent, raising concerns about profit and export competitiveness. Yet, by the end of the quarter, the industry had staged a remarkable turnaround. A rebound in US demand, rapid supply consolidation, and the emergence of favorable trade agreements have collectively pushed the sector to what many describe as its strongest short-cycle recovery in three years.

Leading companies including Vardhman, Welspun, Gokaldas Exports, Indo Count, Kitex, KPR Mill, Nitin Spinners, PDS, Pearl Global, RSWM, SP Apparels, and Trident reported improving order visibility as global buyers accelerated sourcing from India. At the same time, the recovery has revealed a growing competitive divide between large, globally integrated manufacturers and mid-sized operators struggling to meet increasingly demanding compliance and supply-chain requirements.

Supply rationalisation reshapes spinning sector

The most significant change has occurred in the spinning segment, where years of excess capacity have finally begun to unwind. Industry capacity has seen a substantial correction, with approximately 11 million spindles permanently shut down. As a result, effective operating capacity has fallen to around 41-42 million spindles against a rated capacity of 53 million.

The drop has fundamentally altered market dynamics. Yarn spreads have grown nearly 40-50 per cent, from around $0.65 per kg to between $0.90 and $0.95 per kg . The improvement has restored profit across large sections of the spinning industry and strengthened confidence among manufacturers.

Table: Indian spinning industry performance indicators (2026)

A major driver of this recovery has been China’s increased appetite for Indian yarn. Chinese manufacturers are sourcing Indian yarn at roughly four times historical volumes, averaging nearly 30 million kg per month. The reflects growing efforts by Chinese buyers to secure clean-origin cotton inputs amid heightened scrutiny over Xinjiang-related sourcing practices. Consequently, many Indian spinners have already sold export capacity several months in advance. Despite the favorable environment, companies remain cautious. Most are waiting for six to nine months of sustained profit before committing capital toward fresh capacity expansion, mindful that cotton price volatility could quickly alter economics.

Apparel exporters show resilience

The garment manufacturing segment displayed remarkable adaptability during the tariff-driven disruption. Between August 2025 and February 2026, when cumulative US tariffs reached 50 per cent, many Indian exporters absorbed part of the financial burden rather than risk losing strategic relationships with global brands.

Once the peak tariff regime expired in February, leaving only a residual 10 per cent tariff under Section 122 through July 2026, production activity rebounded rapidly. Factory utilization rates climbed from crisis levels of 50-60 per cent to nearly full capacity, reaching 90-100 per cent across several leading exporters.

Companies with diversified manufacturing footprints emerged as clear beneficiaries. Companies such as Pearl Global, PDS, and SP Apparels increased operations across multiple geographies to distribute risk and maintain customer commitments. Their ability to shift production and manage sourcing flexibility proved a critical competitive advantage during a period of heightened uncertainty.

The recovery was also supported by stronger-than-expected consumer demand in the US. Retail sales growth of approximately 8 per cent during calendar year 2025 indicated that the slowdown in imports was largely a result of tariff uncertainty rather than weak end-market consumption. Once policy visibility improved, brands quickly resumed sourcing activity.

Cost pressures persist but prices hold

Even as demand improved, manufacturers continued to grapple with inflationary pressures across the value chain. Freight rates to Europe surged by 75-80 per cent amid disruptions around the Strait of Hormuz. Industrial gas prices tripled, while polyester and dye costs rose roughly 20-25 per cent.

Raw material inflation further intensified challenges. Domestic cotton prices rose sharply from Rs 52,000 to Rs 75,000 per candy following a reduction in India’s cotton crop from 31.5 million bales to 29 million bales. Simultaneously, severe drought conditions in the US cotton-growing region of Texas pushed New York cotton futures from $0.62 to $0.83.

Yet, unlike previous cycles, exporters have largely succeeded in passing these cost increases on to international buyers, albeit with a lag of one to three months. This ability to preserve margins reflects stronger buyer dependence on reliable sourcing partners and the growing importance of supply-chain resilience.

Trade agreements create a window

Beyond the immediate cyclical recovery, the industry is increasingly focused on structural opportunities emerging from trade policy developments. The India-UK Free Trade Agreement, ratified in June 2026, and the anticipated India-EU Free Trade Agreement expected in early 2027 could reshape global sourcing patterns.

For Indian manufacturers, these agreements potentially create a tariff advantage of up to 12 per cent over Chinese competitors in European markets. Sourcing teams from European brands have already increased factory audits and supplier evaluations in India as they prepare for implementation.

The opportunity is increased by Bangladesh’s graduation from Least Developed Country status in 2029, which will eventually reduce its preferential access to European markets. Together, these developments position India as a leading contender for incremental global apparel sourcing.

However, trade access alone will not guarantee growth. Wazir Advisors notes that many mid-sized manufacturers still lack the sophisticated documentation, traceability systems, and rules-of-origin capabilities required to navigate stringent European customs regulations. As brands prioritize compliance, sustainability, and multi-country sourcing capabilities, market share is likely to concentrate further among the largest and most sophisticated exporters.

The transformation underway suggests that India’s textile industry is no longer competing solely on cost. What was once a fragmented, commodity-driven sector is evolving into an integrated manufacturing sector. The companies that combine scale, compliance capabilities, diversified production networks, and trade-agreement advantages are emerging as the primary beneficiaries of a global sourcing pattern that rewards reliability over price alone. As buyers continue to rebalance supply chains, India’s textile sector appears positioned to convert a period of extraordinary disruption into a durable phase of export-led growth.