India Ratings and Research Wednesday maintained a stable outlook on the cotton and synthetic textiles sector for the remaining period of this financial year.
It expects the domestic demand for textiles to remain robust from end-users, supported by a strong rise in private consumption during the rest of FY19.
The agency also expects textile exports to rise, which will result in apparel exporters benefitting due to the depreciation of rupee against the US dollar.
The rupee has depreciated at a higher rate against the US dollar during the April to August period than the currencies of key apparel-exporting nations, according to India Ratings.
The sector profitability is likely to improve gradually with players passing on increased raw material prices to end-users following healthy demand, a depreciating rupee and waning impact of the structural issues, it said in a report.
However, the positive impact of improved demand and profitability will, according to the agency, be partly affected by working capital requirements on the back of cost inflation leading to steady reliance on debt.
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A lower-than-expected cotton production in 2017-2018 (October-September) and a further decline in production in 2018-2019 due to a low acreage, along with high domestic consumption demand and high export demand from China, would further erode the domestic stock levels, it said.
An expected decline in the stock levels, along with a likely rise in minimum support price for the cotton season 2018-2019, would keep cotton prices elevated, according to India Ratings.
"This is likely to result in volume growth of synthetic textiles and support the profitability of the synthetic value chain," it said.
Also, the government's decision to allow input credit on man-made fabric to 7 per cent of fabric price, according to the ratings agency, would lead to a decline in input prices for apparel manufacturers and further support their volume growth.