ICRA: Tariff Impact on Cotton Yarn to Ease in H2 FY26
Following a flattish H1 FY26, the impact of US tariff on Indian cotton spinners is expected to moderate cotton yarn realisation in H2, ICRA said.
Cotton spinners' revenues are projected to drop by 4-6 per cent in FY26 and margin contraction is likely to be 50-100 bps.
Moderation in cotton prices is likely to offset the impact to an extent.
Material expansion in capacity creations is not expected in FY26.
Following a flattish first half (H1) of fiscal 2025-26 (FY26), the trickle-down effect of US tariff on Indian cotton spinners is expected to moderate cotton yarn realisation in the second half, according to ICRA.
Revenues of cotton spinners are projected to decline by 4-6 per cent in FY26 and margin contraction is likely to be 50-100 basis points (bps). Moderation in cotton prices is expected to offset the impact to an extent.
Any positive developments around the ongoing tariff-related negotiations with the United States could help soften the impact to an extent, the Moody’s Ratings affiliate said in a report titled ‘Indian Cotton Spinning Industry: Trends & Outlook’
After witnessing a modest recovery in FY25 with increase in domestic yarn consumption by 2 per cent year on year (YoY), the Indian cotton spinning industry, is navigating a challenging phase in FY26 amidst a mix of stable domestic demand and effects of reciprocal and punitive tariffs levied by the United States on Indian apparel exports.
To mitigate the impact, Indian apparel exporters are providing sizeable discounts, which are being absorbed throughout the value chain (including spinners).
The import duty exemption on cotton imports in India till December 2025 and recent relaxation on quality control orders for both viscose staple fibre (VSF) and several yarns and polyester fibres is likely to moderate raw material prices for manmade fibre (MMF) yarn manufacturers, it said.
“While this supports readymade garments manufacturers with access to raw material at competitive prices, it exposes domestic MMF yarn manufacturers to competition from import suppliers,” noted ICRA.
Domestic cotton fibre prices fell by around 3 per cent month on month (MoM) in November 2025. Average cotton yarn prices fell by 4 per cent.
This resulted in contribution levels moderating to ₹96/kg in November 2025 from ₹103 per kg in H1 FY26. ICRA anticipates contribution levels are likely to stabilise at ₹98-100 per kg for FY26 due to moderation in realisation expected in H2 FY26.
ICRA's sample set of 13 companies, which accounts for 25-30 per cent of the industry's revenue, is expected to report a 4-6 per cent decline in revenues on a YoY basis in FY26.
Additionally, margins are expected to contract by 50-100 basis points in FY26, primarily due to weaker performance expected in H2.
Given the available capacities, material expansion in capacity creations is not expected in FY26 in the sector, ICRA added.
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