India’s cotton yarn industry is poised for a strong revival, with Crisil Ratings forecasting a 7–9% revenue growth in FY26. This optimistic outlook is largely attributed to a resurgence in export demand, especially from China, as well as steady domestic consumption. These twin forces are expected to significantly improve the operating and financial performance of yarn spinners across the country.

According to the report, China remains a critical export destination, contributing 14% to India’s cotton yarn export revenue. After witnessing a 5–7% drop in FY25, owing to elevated domestic cotton output in China, a reversal of this trend is anticipated in FY26. Crisil estimates a 9–11% growth in yarn exports to China, driven by the normalisation of China’s cotton production levels, thus improving global trade flows and demand for Indian yarn.

Cotton Corporation of India’s Role in Stabilising Inputs

A key element of the forecasted growth lies in the role of the Cotton Corporation of India (CCI). The CCI has undertaken large-scale procurement of cotton during the 2025 season, which will ensure smooth and steady availability of cotton across India. This is expected to minimise inventory-related losses for yarn manufacturers and contribute to an improvement in profitability by 50–100 basis points.

Furthermore, cotton yarn spreads—the price differential between raw cotton and cotton yarn—are expected to remain stable, ensuring that operating margins expand steadily in FY26. This stability in raw material supply and pricing is vital to protecting yarn spinners from the kind of volatility that impacted earnings in previous years.

Domestic Demand Adds to the Tailwinds

Alongside the rebound in exports, domestic consumption of cotton yarn remains strong, bolstered by robust demand from the apparel and home textiles sectors. Increased activity in India’s garment manufacturing hubs and textile clusters is expected to sustain yarn orders from local fabric producers. The Make in India initiative, coupled with PLI (Production Linked Incentive) schemes for textiles, continues to attract investment into the sector and support internal demand growth.

These domestic consumption patterns provide a second engine of growth, balancing the cyclical risks associated with export markets. Spinners who have diversified into the value-added yarn segment, such as combed and compact yarn, are especially well-positioned to take advantage of this upswing.

Improving Financial Health and Credit Metrics

Crisil’s report further projects a stable to improving credit profile for cotton yarn manufacturers. With better earnings visibility and controlled capital outlay, interest coverage ratios—a key indicator of financial strength—are projected to improve to 4.5–5 times in FY26, up from 4–4.5 times in FY25.

Gearing levels, a measure of debt to equity, are expected to remain comfortable at 0.55–0.6 times, indicating low financial risk. Most companies are expected to avoid aggressive capital expenditure in the near term, with only a handful of well-capitalised players pursuing selective expansion or technology upgrades.

Additionally, with cotton availability being managed efficiently through CCI intervention, the need for large incremental working capital loans will reduce, easing cash flow pressures and preserving balance sheet health.

Capex Trends and Industry Strategy

Unlike the capacity expansion booms seen in other industrial segments, capex in cotton yarn is expected to stay moderate, and largely concentrated among firms pursuing automation or backward integration. These include investments in ring spinning, rotor spinning, and ginning facilities, where efficiencies can translate into better profitability and faster inventory turnover.

Industry players are also expected to adopt lean manufacturing, waste recycling, and digital inventory management tools, further boosting margins.

Risks to the Outlook: Trade and Economic Headwinds

Despite the positive outlook, the Crisil report also notes key downside risks that the industry will need to navigate carefully:

1. Trade Policies: Any changes in tariffs or trade restrictions by India's export markets or competitors (like Pakistan, Bangladesh, or Vietnam) may impact export competitiveness.

2. Global Economic Trends: A potential economic slowdown in the US or EU, major end-markets for Indian textiles, could affect downstream demand and indirectly impact yarn orders.

3. Inflation and Input Cost Volatility: Persistently high inflation or a sharp rise in domestic cotton prices relative to global benchmarks could squeeze margins and reduce India’s price advantage in the global yarn market.

The report advises industry stakeholders to maintain vigilance over global trade dynamics, particularly free trade agreements (FTAs) and World Trade Organization (WTO) interventions, that may reshape the cost-benefit equation in global cotton trade.

The Road Ahead: Resilience and Competitiveness

Looking into FY26 and beyond, the Indian cotton yarn industry appears well-positioned to harness emerging opportunities, provided it remains agile and strategically diversified. Key focus areas for the industry should include:

• Market diversification beyond China and Bangladesh, exploring untapped geographies in Africa, Southeast Asia, and South America.

• Investments in sustainability, including organic cotton, eco-friendly dyeing, and recycled yarn production, aligning with evolving global buyer preferences.

• Digital transformation, with end-to-end supply chain digitisation and use of AI-driven forecasting tools for raw material procurement.

India’s extensive cotton farming base, competitive labour costs, and government support policies make it uniquely equipped to become a global leader in spun yarn exports. The upcoming fiscal year could be a turning point for consolidating India’s leadership in the cotton textile value chain.

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