Cotton prices are becoming lower and demand for cotton is increasing in India. This has created a congenial atmosphere for profitability in the textile sector. A higher-than-expected rise in cotton acreage at 19 per cent and a consequent 11 per cent increase in crop production in fiscal year 2017-18 are likely to moderate cotton prices in fiscal year ’19.

Better margins, modest reduction in working capital requirements and subdued capex in fiscal year ’19 are expected to improve the overall credit profile. However, there are constraints due to the possible impact of pink bollworm on cotton output and prices on the outlook of the textile sector. The same was extended to the synthetic sector owing to the increase in crude oil prices.

The trend of shifting from cotton to synthetic yarns is expected to slow down as increasing crude prices will narrow down the price difference between the two categories. Operating margins of synthetic manufacturers may witness volatile margins due to crude price fluctuations and delays in passing on cost inflation. Domestic demand decelerated due to demonetization and the GST. The second half of the financial year showed the bottomed out effect due to this.