New Delhi :  India’s cotton yarn industry is expected to witness a year-on-year growth of 5-7 per cent in its sale volume in FY24, according to a report by CareEdge Ratings released Thursday.

Indian cotton yarn exports has hit a decade-low level of 664,000 tonnes in FY23, compared to the highest exports of 1,389,000 tonnes in FY22.

CareEdge Ratings in its report said that the demand for cotton yarn in FY22 was strong, driven by downstream demand for home-textile products and the advantage of lower domestic cotton prices compared to international prices.

“Furthermore, America’s ban on cotton products from China’s Xinjiang region redirected some of the demand from China to other countries, including India. This increased demand also led to an elevated cotton yarn spread of around Rs 125 per kg in FY22, which was 25-30 per cent higher than the historical average,” it said in a report.

In FY23, the cotton yarn exports faced challenges due to the disparity between domestic and international cotton prices.

“The global demand slowdown resulting from high inflation and recessionary pressures in developed economies, such as the USA and the European Union, further impacted the industry. Retailers with excess inventories deferred new orders for home textiles and ready-made garments (RMG), negatively impacting the demand for cotton yarn,” the ratings agency said.

One of the major reasons for the expected high growth in FY24 is the shift in demand from competing nations, which can create opportunities for Indian exporters. Additionally, the gradual relaxation of China’s zero Covid policy is anticipated to improve demand from China.

However, analysts have warned that average sales realisation of cotton yarn is expected to fall by 12-17 per cent followed by a decline in cotton prices.

The report highlighted that the slowdown in demand is expected to continue in H1FY24 amidst macro-economic headwinds while demand is expected to improve in H2FY24, thereby limiting growth in FY24.

India’s spinning industry is expected to register a revenue decline of around 8-10 per cent,  while the operating margin is expected to expand by 100-150 bps aided by higher capacity utilization, softening of cotton prices coupled with the benefit of lower freight and power cost.