India's textile industry is well-positioned to benefit from both a cyclical recovery in global demand and a long-term structural shift in global sourcing patterns, according to Siddhartha Khemka, Head-Retail Research, MOSL . While inventory normalisation in key export markets is supporting near-term growth, he believes the larger opportunity lies in India's rising role as global apparel brands diversify manufacturing away from China.
Explaining the outlook, Khemka said the sector's recovery is being driven by a combination of cyclical and structural factors, although the structural story is expected to be far more significant over the coming years.
"If you look at it, it is a combination of both. But the structural story is much larger than the cyclical recovery. The cyclical part is very evident. US and Europe retailers have spent the last two years correcting the excess inventories built after COVID. So, if you look at some of the data points, like the inventory-to-sales ratios, they have now normalised, and ordering patterns are gradually returning to normal," he said.
"However, what we believe is that the bigger story, or bigger opportunity, lies in what is a structural shift in the global textile industry. Global brands are actively diversifying their sourcing away from China due to geopolitical risks, compliance concerns, as well as rising costs. If you look at India today, it accounts for only about 4% to 5% of global apparel exports despite being one of the world's largest cotton producers and the second-largest spindle capacity holder," he added.
Apart from these factors, there is also political instability in some of the competing countries, such as Bangladesh and Pakistan. There have been restrictions on China's Xinjiang province, which produces a lot of cotton. Plus, there is a growing preference for large, compliant suppliers. All of these, we believe, are creating a multi-year opportunity for India, he further said.
"Hence, while inventory normalisation may be cyclical and drive the next 12 to 18 months of growth, we believe that the global sourcing shift can be a potential growth driver for the Indian textile industry for the next decade or so," he added.
Khemka also believes the proposed free trade agreements with the United Kingdom and the European Union could significantly improve India's competitiveness in global textile exports.
He said the agreements would do much more than simply provide an incremental boost to demand, as they would narrow the tariff disadvantage Indian exporters currently face against countries such as Bangladesh and Vietnam.
"So, definitely, that is again a big positive, and this will be much more than just an incremental growth driver. Historically, India has been at a tariff disadvantage versus countries like Bangladesh and Vietnam in key export markets, and this is exactly where the UK FTA and the proposed EU FTA can significantly narrow the gap that Indian exporters have vis-à-vis players in Bangladesh and Vietnam," he said.
If we look at it, the Indian textile industry is targeting exports to grow at over 20% CAGR over the next few years. Government policies have been supportive, and the FTAs would be a key catalyst. More importantly, from a global brand's perspective, an 8% to 12% tariff advantage can materially influence sourcing decisions. Hence, we believe the FTAs can accelerate market share gains for India rather than simply pushing demand in the near term," he added.
Discussing his preferred investment ideas, Khemka said investors should focus on companies with strong customer relationships, sufficient capacity and high operating leverage. Based on these parameters, he believes Gokaldas Exports is best positioned to benefit from the evolving industry dynamics.
"If the debate is about which company benefits the most from the sourcing shift, investors should focus on three factors: customer exposure, available capacity, and, more importantly for a capital-intensive industry like textiles, operating leverage. We believe Gokaldas Exports scores highest on all three fronts," he said.
"First, it is one of the most export-oriented apparel manufacturers in India and has deep relationships with global brands. As these brands consolidate their vendor base and shift away from Chinese, Bangladeshi and other suppliers, they are unlikely to onboard hundreds of small new vendors. Instead, they will increase business with existing large, compliant and stable suppliers, and Gokaldas fits perfectly into that category," he further added.
"Secondly, the company has been aggressively expanding capacity not only in India but also in Africa. This creates a unique advantage, allowing it to cater to customers seeking India-based sourcing while also leveraging Africa to access US markets. That flexibility works well for global retailers," he said.
"Thirdly, operating leverage is a major positive. While we expect revenue to grow at an 18% CAGR, EBITDA is projected to grow by about 30% to 35%, while net profit is expected to grow at nearly 70% CAGR over the next two to three years. That makes Gokaldas our top preferred pick," he also added.
Besides Gokaldas Exports, Khemka also likes Pearl Global because of its diversified manufacturing footprint across India, Bangladesh, Vietnam and Indonesia, which gives it greater flexibility to cater to global retailers amid changing supply chains.
He added that KPR Mill remains a high-quality company with strong execution and an integrated manufacturing model, although much of its earnings potential is already reflected in current valuations.
"Following that, we like Pearl Global. Its key strength lies in its manufacturing footprint across India, Bangladesh, Vietnam and Indonesia. That gives it flexibility and makes it strategically attractive to global retailers. Because of this, Pearl Global can benefit from the ongoing global supply chain shift," he said.
"Thirdly, we like KPR Mill. It is a high-quality company, and its strength lies in its integrated manufacturing model, strong garmenting capacity and superior execution. However, we believe a meaningful part of its earnings growth has already been factored into valuations. Hence, while it remains a quality play, we currently have a neutral rating on KPR Mill," he added.
Looking ahead, Khemka expects Gokaldas Exports to remain the biggest beneficiary if demand from US retailers rebounds faster than anticipated. In the home textile segment, he believes Indo Count is another company that could deliver strong earnings upgrades.
"So, definitely, Gokaldas Exports would be our first choice, but Indo Count could be the second if US retailers normalise their ordering activity faster than expected.
For Gokaldas, we are seeing significant capacity additions, and utilisation can improve much faster if incremental orders come at a stronger pace. The company offers substantial operating leverage, and with higher capacity utilisation, net profit growth could accelerate meaningfully," he said.
Similarly, if customer ordering recovers faster and demand improves, replenishment orders can happen rapidly, and Gokaldas is well positioned to fulfil those requirements. We are expecting more than 70% net profit CAGR over the next two years, from FY26 to FY28, and it has the highest probability of earnings upgrades if demand surprises positively. Within home textiles, Indo Count definitely stands out. The company is benefiting from a recovery in the bed linen segment while also expanding into utility bedding and adjacent product categories. As a result, Indo Count could benefit from higher utilisation, an improving product mix and stronger operating leverage. We expect nearly 90% net profit CAGR over the next two years," he further said.
"Overall, if US demand surprises positively, Gokaldas is likely to see the strongest earnings upgrades in the apparel segment, while Indo Count is the company to watch in the home textiles space, he concluded.
