Weak domestic demand growth, threat of cheap imports and dwindling incentives and exports are likely to keep volumes in the Indian textile sector muted. Withdrawal of incentives under the MEIS from India scheme may affect export players of made-ups (home textiles) and garments. Indian exports are likely to remain uncompetitive against counterparts in Pakistan, Bangladesh, Turkey and Vietnam. However, key raw material prices are expected to remain low in 2020-21, after a correction in 2019-20, contributing to a modest recovery in margins, stable working capital requirements and steady cash flows. Cotton prices may stabilise with improved cotton supply and an inventory build-up in the next fiscal. The industry adjusting to a low dealer inventory is becoming the new normal. Easing of the GST implementation issues might only provide modest support to demand growth, unless liquidity improves. Liquidity remains choked, with lack of bank funding and sluggish end-consumer demand. Sector consolidation may continue in 2020-21, while the mid and small commodity players continue to struggle.
However, regulatory support in form of GST refunds for spinning chains and availability of input tax credit from units operating in the unorganised sector or composition scheme may improve liquidity in the value chain.