The US imposed a 35% tariff on Bangladesh, leading to a significant surge in Indian textile stocks. If India secures tariff relief in a trade deal, it could gain a competitive edge in exports.
Textile Stocks: On July 8th, textile sector stocks experienced a substantial rally. Stocks like Vardhman Textiles, Gokaldas Exports, Siyaram Silk Mills, Alok Industries, Indo Count, Sangam India, and Nahar Spinning Mills surged up to 15% intraday. Four out of the top 5 stocks in the BSE Smallcap index were from the textile sector. In contrast, the BSE Sensex remained largely flat.
Indirect Benefit for India from US Tariffs
Recently, the US imposed a 20% tariff on exports from Vietnam and a 40% tariff on transshipped goods, as part of a trade deal with Vietnam. Furthermore, a 35% tariff has been implemented on imports from Bangladesh. Analysts believe that these tariffs could provide India with a competitive advantage in terms of exports to the US.
India's Market Share Could Increase with a Trade Deal
According to a report by ICICI Securities, Bangladesh holds a 9% share and Vietnam holds a 19% share of the ready-made garment exports to the US. India's share is currently around 6%. If India enters into a favorable trade deal with the US, this share could increase because India currently faces only a 10% tariff, while others face tariffs up to 26%.
Positive Outlook for the Textile Sector
According to brokerage reports, a mini-trade deal between India and the US could be signed soon. This could lead to a revision of tariffs on key sectors. This potential agreement could greatly benefit Indian textile companies. Although some companies, such as Gokaldas Exports and Welspun Living, have anticipated pressure on margins in the first half of FY26, most companies believe the current weakness is temporary.
Strength from UK-FTA as well
The Free Trade Agreement (UK-FTA) between India and the UK will also provide new space for textile companies in the British market. This will reduce reliance on the US market. JM Financial believes that India's scalability, low cost, and better execution capabilities will give it an edge over high-cost economies like Vietnam.
