India's textile exports to gain momentum in FY26: Ind-Ra

India Ratings and Research (Ind-Ra) has maintained a neutral outlook on the overall textile sector for fiscal 2026 (FY26), expecting continued year-on-year (YoY) improvement in export volumes. The export demand growth, particularly from quarter three of fiscal 2025 (Q3 FY25) onwards, is set to be driven by restocking in key importing nations and a shift towards India under the China-Plus-One sourcing strategy.

Ind-Ra anticipates India’s textile exports to gain momentum over FY26, benefitting from growing demand in major markets such as the European Union, the United States, and the United Kingdom. Additionally, geopolitical issues in Bangladesh and increasing US tariffs on other exporting countries are expected to bolster India’s market share in the global textile space, the domestic rating agency noted.

Cotton prices are expected to remain firm amid an anticipated domestic supply deficit in 2024-25, driven by lower production and sustained consumption. The Indian government has raised the minimum support price (MSP) for cotton by 7 per cent to 8 per cent in June 2024.

The Cotton Corporation of India (CCI) has been actively procuring large volumes to stabilise prices and may offload inventory later in the season to prevent sharp domestic price hikes. Despite an 11 per cent import duty on raw cotton, imports could increase due to softening global cotton prices amid a surplus international crop.

Ind-Ra forecasts a decline in India’s cotton yarn export volumes in fiscal 2025 (FY25) and FY26 due to domestic supply constraints and steady local demand. Meanwhile, yarn imports may rise to bridge the supply gap. The ongoing political instability in Bangladesh may also impact India’s cotton yarn exports, as Bangladeshi importers seek to diversify their supplier base and prioritise domestic consumption if export orders rise.

India’s domestic textile demand is expected to grow at 9 per cent to 10 per cent YoY in FY26, driven by an estimated 7 per cent rise in private final consumption expenditure. However, elevated spreads between cotton and man-made fibres (MMF) are likely to encourage partial demand substitution towards MMF textiles.

While the first half of FY25 may see subdued export demand and lower margins, Ind-Ra expects an overall improvement in EBITDA margins in FY26, supported by stable raw material prices, better gross margins, and increased capacity utilisation. The liquidity profile of key industry players remains strong, bolstered by healthy operating cash flows.

Ind-Ra highlights the need for enhanced government support to drive investments in infrastructure and downstream capacities to maintain India’s global textile competitiveness. Integrated downstream players are positioned better than upstream counterparts in securing incremental orders.

Ind-Ra has maintained a stable rating outlook for FY26, with the expectation that increasing export volumes from Q3 FY25, along with strong domestic demand, will support industry growth. Credit metrics are projected to improve marginally in FY26, as absolute EBITDA rises despite high capital expenditures by most players.

Fibre2Fashion News Desk (HU)