Credit ratings agency Fitch today said the outlook for the Indian cotton textiles industry in the 2012 calendar year is ‘negative’ to ‘stable’, while that of synthetic textiles is ‘stable’.
The agency further said that given the challenging operating environment amid uncertainty over demand growth and volatility in raw material prices, it is unlikely that the sector’s outlook will turn positive.
However, Fitch said if falling cotton prices translate into a revival in demand and capacity utilisation, the outlook for cotton textiles could turn stable in the last two quarters of the year.
Margin pressure would persist for both the cotton and synthetic textiles industry, driven by rising power and wage costs and higher interest rates.
The cotton industry is presently facing challenges like slow demand and a loss in margins, but a recovery is expected on account of falling cotton prices, though this could be negated by further volatility in input costs or forex movements, it said.
Weak demand for cotton and cotton products last year was mainly a result of surplus inventories prompting mills to postpone further buying in the backdrop of uncertainty in overseas demand for textiles.
Due to the current situation, instead of adding capacity here, garment manufacturers are looking at the option of setting up capacity or outsourcing job work to Bangladesh to benefit from the lower cost of production, the firm said.
Posing difficulties for textile units, the agency said refinancing risks would increase for distressed textiles companies in 2012, as the Reserve Bank of India and the Finance Ministry have rejected the proposal for restructuring of textile loans.