Despite cotton prices remaining higher than international rates, demand across India’s textile sector will continue to improve, according a new report by Systematix International Equities Research. Spread across upcoming quarters, this improved demand will help profitability and operational efficiency for Indian textile companies, the report adds.
Several factors contribute to the positive demand outlook. Global retailer inventories are normalizing, the US may implement higher tariffs on Chinese goods, labor costs are rising in Vietnam, and Bangladesh faces political instability. These factors position India as a potentially strong player in the global textile market. However, capacity constraints among Indian garment manufacturers could hinder their ability to fully capitalize on the increased demand, the report adds.
Despite this, stable cotton prices, favorable exchange rates, and a focus on operational efficiency will help improve profitability. Indian textile companies have already demonstrated strong year-over-year performance, with revenue, EBITDA, and PAT showing healthy growth. Subdued cotton and stable yarn prices have contributed to gross margin expansion for spinners.
The Union Budget 2025-26 reinforces this positive outlook, focusing on strengthening the textile sector through cotton productivity initiatives, fabric duty restructuring, and support for domestic manufacturing. Increased budget allocation for the sector, coupled with initiatives like the PLI scheme, focus on man-made fibers, a five-year productivity improvement mission, sustainable cotton farming, and the growing technical textiles market, are expected to further propel growth. Increased customs duty on fabric imports will specifically benefit India's technical textile producers.
While the Cotton Association of India (CAI) has lowered its cotton production forecast for the 2024-25 season, the ICAR-Central Institute of Cotton Research (CICR) projects a higher output. This discrepancy adds some uncertainty to the supply outlook. International cotton prices have declined, while Indian prices remain at a premium. However, a reasonable cotton crop is expected to keep prices stable, ensuring predictable input costs.
