The outlook for cotton textiles and synthetics in India looks stable. This is in view of expected margin expansion due to softening in cotton prices and improved consumer spending outlook in key user countries. The slowdown in domestic demand for textiles due to demonetization and GST implementation seems to have bottomed out in the second half of the fiscal.

A higher-than-expected rise in cotton acreage at 19 per cent and a consequent 11 per cent increase in crop production in fiscal year 2017-18 are likely to moderate cotton prices in fiscal year 2019, despite an increase in prices in the last few months due to the pink bollworm issue.

Increasing crude price is likely to narrow the spread between cotton and synthetic yarns, thereby moderating the pace of switch to synthetics from cotton textiles. Operating margins of synthetic manufacturers may witness volatile margins due to crude price fluctuations and delays in passing on cost inflation. However these challenges may be countered by improved demand growth on a year-on-year basis and operating leverage benefits. The global stock-to-use ratio for cotton, excluding China, increased 56 per cent in2018 fiscal from 47 per cent in2017, although Chinese inventory declined 17 per cent year on year.