US tariff impact: India Ratings downgrades textiles, diamonds outlook

India Ratings downgraded its outlook for textiles and cut and polished diamonds to deteriorating, warning of tariff risks, weaker cash flows and SME stress in H2 FY26

Credit rating agency India Ratings has downgraded the outlook for textiles as well as cut & polished diamonds (CPD) sectors from “neutral” to “deteriorating” amid rising fear of adverse impact of high US tariffs on Indian exports.

 

It also maintained a deteriorating outlook on sectors namely road construction and second-tier players in cement and residential real estate years for the second half of the current financial year (H2FY26).

 

Tariff uncertainty is likely to impact earnings and cash flows for 2HFY26 for large companies in export-heavy sectors, along with an increase in the working capital cycle. While the balance sheets of large units are healthy, the demand slowdown has caused lingering stress for job-intensive small and medium enterprises (SMEs), India Ratings said in a statement.

   

Dwelling on sources of stress for big companies and SMEs, India Ratings said in domestic consumption-driven sectors such as auto, FMCG, real estate, K-shaped recovery persists, impacting the value chains exposed to the lower jaw of recovery.

 

A subdued growth outlook in infrastructure spending has also intensified competition in certain sectors, driving margin erosion in EPC, cement and telecom-media. Finally, the recent geopolitical shocks, including US tariffs have created significant vulnerability for export-led sectors (such as textiles, diamonds, and select agro-commodities).

 

In commodity-driven sectors such as metals and jewellery, SMEs are likely to be more severely impacted by external shocks than large corporates. The latter cater to primarily domestic demand, have a diversified customer profile and have benefited from the recent deleveraging cycle, it added.

 

While the overall capex recovery remains uneven, corporates with robust balance sheets continue to invest in brownfield capacity expansion and inorganic opportunities. The sectors such as power, telecom, oil & gas, and metals are expected to drive bulk of the ongoing capex.

 

New sectors namely data centres, warehousing, semi-conductor value chains and electric mobility would grow in significance, aided by government incentives and production-linked incentive schemes, India ratings said.