The overall outlook for cotton textile sector for 2015-16 is stable. Stable profit margins in the cotton yarn segment, range-bound prices, favorable domestic and export demand for downstream fabrics and apparel are expected to help the sector. However, the outlook for cotton yarn exporters is negative due to a slowdown in demand for yarn, particularly from China, leading to softer yarn realisations and lower capacity utilisation.

Cotton spinners’ EBITDA margins, which were hurt by inventory valuation losses in 2014-15, could recover in 2015-16 in the range of 10 to 13 per cent. But it would still remain lower than the 2013-14 levels when spinning mills benefited from exceptionally high Chinese demand. Oversupply of cotton and cotton yarn over 2015-16 coupled with lower average crude prices could also cause the price of polyester fibers to decline.

Although India has a small share in the global textile trade, it is well positioned to gain from weak input prices and growing demand for apparels and made-ups. Growth of garment manufacturers might remain largely volume led while realisations could continue to exhibit commodity and competitive pricing pressure.