Weak demand of value added products like yarn, fabric and apparel is bound to impact raw material prices. The study forecasts a correction in cotton prices over 2QFY21 from the levels of Rs 95 per kg as of May 2020 due to a low demand and high holding levels at Cotton Corporation of India. However, holding stocks could only provide a short-term relief. Some of the inventory is expected to be exported, given the advantage of lower prices and rupee depreciation.
“The textile industry
is labour intensive in nature, and with most labourers headed to their hometowns, sector companies could face challenges to operate even at low capacities. The labour issue is expected to normalise in three-four months," says the study.
Meanwhile, readymade garments / apparels and cotton yarn exports, which were already facing headwinds prior to the lockdown, is likely to be more impacted than other segments, led by the fragmented nature of industry and a slowdown in Chinese yarn demand. The situation has worsened in the lockdown
with consumers delaying discretionary consumption. Amid high competition, the oversupply in the domestic market is likely to postpone demand normalcy until September 2021.
Conversely manmade fibres/synthetic players have the advantage of a lower cost compared to cotton players and therefore could see a better demand, as players look to blend synthetics more in the fabrics/apparels.
Key issues such as supply chain disruptions, incentives and labour unavailability need to be addressed to revive the textile sector. Labour retention policies of each state would be critical to ensure minimum disruption of manpower availability.
The subdued domestic demand and declining exports due to lockdown
in importing countries on account of Covid-19 pandemic has come as a double blow for textile companies. While the domestic demand could revive in 3QFY21 with the onset of the festive season and reopening of retail spaces, export demand would be fairly depend on the recoup of major economies such as the US and UK. Also, there seems to a short-term opportunity for Indian companies to cater to those markets which were earlier catered by China and Bangladesh. However, the threat of import of lower cost raw materials persists and could hamper the domestic industry in the near term.