Explained — Why textile stocks are under pressure and the next potential headwind

India's textile stocks, Gokaldas Exports, Arvind, Vardhman Textile, fell as much as 6% on Tuesday, February 24, after the Directorate General of Freight Trade (DGFT) notified a 50% reduction in Remission of Duties and Taxes on Exported Products (RoDTEP) across all lines with immediate effect.

Analysts tracking these stocks believe that the DGFT will now follow this move up with a reduction in rates in Rebate of State and Central Taxes and Levies (RoSCTL).

A reduction in RODTEP rate will increase the cost of the entire value chain as yarn and fabric are primary inputs for Value Added Products.

The budget speech on February 1 also highlighted a 50% reduction in the absolute budget amount for RoDTEP and RoSCTL.

According to Elara Capital, the Yarn and Fabric players operate in a highly competitive, price-sensitive global market, adding that exporters will be compelled to reprice new orders higher to protect their profitability.

The brokerage added that stocks like Vardhman Textiles and Arvind have a meaningful exposure to yarn and fabric exports and are therefore vulnerable to this policy change.

If the rate reduction is not passed on to customers, the companies could see their Earnings Per Share (EPS) being impacted by 4% to 6% for financial year 2027 and 2028 respectively, according to the Elara note.

A similar risk is seen for Nitin Spinners as well, with its cotton yarn and fabric export mix, Elara said.

Textile stocks are already grappling with further uncertainties with regards to tariffs, after the US Supreme Court ruled the Trump Administration's tariff policy to be illegal, post which, Donald Trump announced a 10% universal tariff on Friday, before raising it to 15% on Saturday, and warning of more to come in the future.

Shares of Vardhman Textiles are looking to recover from the lows of the day and are currently trading 2.5% lower, while those of Arvind are down 5.5%. Gokaldas Exports' shares are still down 5%. Nitin Spinners' shares, which recovered from opening lows, are currently trading with gains of 1.2%.