India Ratings (Ind-Ra) has revised its cotton outlook to stable for the next financial year (2017-18) from negative for the fiscal year 2016-17 following steady input prices, healthy capacity utilization and healthy domestic demand.
Ind-Ra said that the status will stem from fiscal incentives and implementation of the Goods and Services Tax (GST) that will improve the industryâ€™s export competitiveness.
Favourable trade agreements with the U.S. and Europe will also lead to a significant increase in Indiaâ€™s exports and a higher-than-expected domestic demand would be positive for the sector, it added.
Moreover, Ind-Ra believes that with the U.S.â€™ exit from the Trans-Pacific Partnership, it is likely to realign textile trade and investments, which were diverted to Vietnam over FY16-FY17, towards the Indian subcontinent ) and the likelihood of tax rationalisation under GST.
Further structural advantages in the form of dominance in cotton production, cost and quality competitiveness due to increasing integrated fibre to apparel/ made-ups capabilities, governmentâ€™s stimulus to exports, declining interest rates and stable currency regime are expected to favour Indiaâ€™s export share.
The stable cotton outlook is in view of an increase in acreage, a rise in supply in the first quarter of FY18 (due to demonetisation) and a decline in global inventory assisting with a balanced supply, Ind-Ra said.
It also expects operating profitability levels of Indian cotton ginners and exporters to moderate in FY18. Ind-Ra believes that in FY18, Indiaâ€™s share in the global textiles and apparel trade could see an increase.
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