According to a recently published report, cotton prices getting lower and the demand for cotton increasing have created a congenial atmosphere for profitability in the textile sector.
According to an Indian Ratings and Research report that was published recently, "We have maintained a stable outlook for cotton textiles and synthetics for FY19. This is in view of expected margin expansion due to softening in cotton prices, improved consumer spending outlook in key user countries and the low base effect of FY18."
Domestic demand has decelerated said the report citing the reason as demonetization and goods and services tax (GST) implementation. The second half of the financial year showed the bottomed out effect due to this. The report further said, “Better margins, modest reduction in working capital requirements and subdued capex in FY19 will improve the overall credit profile.”
The report also cited 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 increase in crude oil prices.
The trend of shifting from cotton to synthetic yarns will slow down as increasing crude prices will narrow down the price difference between the two categories.