Cotton textiles expected to see stable outlook in financial year 2018 after negative 2017. This has been stated by the India Ratings and Research (Ind-Ra). It’s not only cotton, the agency has also revised its outlook for synthetic textiles to stable for FY 2018 from negative for FY 2017.
“The stable textile outlook is in view of stable input prices, healthy capacity utilisation and steady domestic demand scenario in FY18 and support emanating through fiscal incentives and implementation of Goods and Services Tax (GST) that will improve the textile industry’s export competitiveness,” reads a statement issued by Ind-Ra.
Moreover, the US’ exit from the Trans-Pacific Partnership is likely to realign textile trade and investments towards the Indian subcontinent that were diverted to Vietnam over FY 2016-17.
The stable cotton outlook is in view of an increase in acreage, a rise in supply in first quarter of FY 2018 (due to demonetisation) and a decline in global inventory assisting with a balanced supply.
Ind-Ra expects operating profitability levels of Indian cotton ginners and exporters to moderate in FY 2018. Liquidity position of small players was acutely affected due to a surge in cotton prices in first half of 2017, followed by a challenging operating environment in second half due to demonetization. It further expects cotton acreage to increase 10-15 per cent to nearly 120 million hectares in FY 2018, leading to increased production. The agency also projects a domestic stock-to-use ratio of nearly 13 per cent for cotton marketing year (MY) 2017-18 (MY16-17: 15.3%, MY15-16: 13.8%).
The expectation is in view of continued auction of Chinese reserves and global cotton processing countries (excluding China) holding about six months of inventory.
“A unified tax structure in the form of GST is likely to create a level playing field for the cotton and polyester industries, and promote enhanced sponsor interest towards the polyester chain. Ind-Ra opines that textile companies would be able to deleverage their balance sheets in FY18 in the absence of major investments due to adequate capacities and pending uncertainty over the GST tax rates,” added the research report.