A report by Systematix Institutional Equities Research shows that the overall demand environment appears to be improving, despite the fact that domestic cotton prices are still higher than foreign prices. In the upcoming quarters, it can recover to help Indian textile companies’ operational efficiency and profitability.
According to the report, the normalising channel inventories at the global retailer level, the probable US tariff hike on China, the rising cost of labour in Vietnam, and the continued political unrest in Bangladesh all contribute to the robust demand forecast for the Indian textile industry.
However, the report expressed concern about the Indian clothing manufacturers’ capacity limitations, which may prevent them from fully capitalising on the anticipated increase in demand.
It pointed out that the profitability of Indian manufacturers will increase in the upcoming quarters due to stable cotton prices, favourable exchange rates, and a persistent emphasis on operational efficiency.
Indian textile companies reported strong year-over-year (YoY) performance, with sales increasing by 11 per cent and profit after tax (PAT) increasing by 28 per cent. Stable yarn pricing and muted cotton prices, which were down 10 per cent year over year, helped spinners’ gross margins grow.
Strengthening the textile industry through steps to increase cotton production, restructure fabric duties, and promote domestic manufacturing are other key components of the Union Budget 2025–2026.
In Budget 2024–2025, the government had already raised its budget for the textile industry from US $ 510 million (Rs 44.2 billion) to US $ 608 million (Rs 52.7 billion).
The Indian textile industry will increase as a result of the government’s emphasis on the Productivity Linked Incentive (PLI) program, manmade fibre, the 5-year objective to support productivity improvements, the sustainability of cotton cultivation, and the technological textile (TT) market.
India’s technological textile producers will benefit from a higher customs charge on fabric imports in the union budget for 2025–2026.
In its January 2025 report, the Cotton Association of India (CAI) reduced its projection for cotton production for the October-September 2024–25 season by 7.8 per cent (YoY) to 30.17 million bales (170 kg per bale), down from 30.4 million bales in its December 2024 report.
The current season’s domestic consumption of 31.5 million bales (2024–25) might not change. Compared to the previous season’s ending stock of 3.02 million bales, CAI anticipates a closing stock of 2.59 million bales at the end of this one. In contrast, the Central Institute of Cotton Research (CICR), which is part of the ICAR, projects that 32.0 million bales would be produced. This number is higher than previous projections that ranged from 29.9 million to 30.4 million bales.
However, global cotton prices have been falling consistently and are currently between US $ 0.67 and US $ 0.68 per pound, down from US $ 0.70 in 2Q FY ’25. Indian cotton prices continue to quote higher than global prices, having marginally firmed to Rs 54,000-55,000/candy (US $ 0.80 per pound) from Rs 52,000-53,000/candy in the second quarter.
Prices are expected to stay at the lower end of the aforementioned range with a cotton crop that is probably reasonable, guaranteeing future input costs that are predictable.
