Indian textile sector eyes growth despite cotton price gap

The Indian textile sector is poised for growth despite domestic cotton prices remaining higher than global rates. Improved demand, stable cotton prices, favorable forex rates, and government support through the Union Budget 2025-26 and PLI schemes are set to boost profitability.

Despite domestic cotton prices remaining higher than global rates, the demand outlook for the Indian textile sector shows signs of improvement, according to a report by Systematix Institutional Equities Research. The sector is expected to recover its margins in the upcoming quarters, boosting profitability and operational efficiency for Indian textile companies.

The report highlights several factors contributing to this positive outlook. “The demand outlook remains strong for the Indian textile sector because of the normalizing channel inventories at the global retailer level, likely tariff hike by the US on China, rising labour costs in Vietnam, and ongoing political instability in Bangladesh.” However, it cautions that capacity constraints among Indian garment manufacturers may limit their ability to fully capitalize on the expected surge in demand.

Nonetheless, stable cotton prices, favourable forex rates, and continued emphasis on operational efficiency are expected to strengthen the profitability of Indian manufacturers in the coming quarters. The sector has already reported healthy year-on-year (YoY) performance, with revenues growing by 11%, EBITDA by 11%, and profit after tax (PAT) increasing by 28%. The decline in cotton prices by 10% (YoY) and stable yarn prices have also supported gross margin expansion for spinners.

The Union Budget 2025-26 further reinforces the government’s commitment to strengthening the textile sector. Key initiatives include enhancing cotton productivity, restructuring duties on fabrics, and promoting domestic manufacturing. The government had previously increased its allocation for the textile sector from Rs 44.2 billion in Budget 2024-25 to Rs 52.7 billion.

The focus on the Productivity Linked Incentive (PLI) scheme, the manmade fibre segment, a five-year mission aimed at improving productivity, sustainable cotton farming practices, and the growth of the technical textile (TT) market are expected to drive long-term growth. An increase in customs duty on fabric imports in the Union Budget 2025-26 is also set to benefit India’s technical textile producers.

On the supply side, the Cotton Association of India (CAI) has revised its cotton production forecast for the 2024-25 season (October-September), reducing it by 7.8% (YoY) to 30.17 million bales (170kg per bale) in its January 2025 report, down from 30.4 million bales estimated in December 2024. Domestic consumption is projected to remain steady at 31.5 million bales for the season. CAI anticipates closing stocks of 2.59 million bales, lower than the 3.02 million bales recorded last season.

Contrary to CAI’s estimates, the ICAR-Central Institute of Cotton Research (CICR) forecasts a higher production of 32.0 million bales, surpassing earlier estimates that ranged between 29.9 million and 30.4 million bales.

International cotton prices have seen a steady decline, currently hovering around US$ 0.67-0.68 per pound, down from US$ 0.70 in 2QFY25. In contrast, Indian cotton prices have firmed slightly to Rs 54,000-55,000 per candy (US$ 0.80 per pound) from Rs 52,000-53,000 in 2Q, continuing to trade at a premium over international prices.

However, with a stable cotton crop expected, prices are likely to stay at the lower end of this range, ensuring predictable input costs for Indian textile companies in the near future. This, combined with supportive government policies and a favourable global market environment, positions the Indian textile sector for sustained growth in the coming quarters.