India's Textile Sector Shows Stronger Recovery, but Cotton Cost Pass-Through Remains Crucial: Report

India's textile sector is showing signs of a stronger recovery, with improved domestic availability of raw materials and greater sourcing flexibility helping create a more favourable environment for industry margins. However, the recovery could face pressure if rising cotton prices are not effectively passed on to yarn buyers, according to a report by 360 ONE Capital.

The report said conditions across the textile value chain have improved significantly, although the pace of recovery varies between segments. For the spinning industry, the ability to raise yarn realisations in line with increasing cotton costs will remain a crucial factor in determining whether current margins can be sustained.

Cotton spinning recorded one of its better quarters in the past two to two-and-a-half years, supported by healthy demand, strong capacity utilisation and a significant improvement in yarn spreads. India’s earlier disadvantage in cotton prices compared with global markets has also reduced. At the same time, capacity closures and limited additions have helped improve the industry's demand-supply balance.

Demand from China has provided another boost to the Indian yarn industry. Higher cotton prices in China have improved the economics of importing Indian yarn, making the country an increasingly important market. Indian yarn exports increased from approximately 95-97 million kg per month to nearly 110 million kg, with China accounting for much of the increase. The report expects this demand to remain supportive.

The rise in cotton prices during the second quarter has emerged as a major risk. If yarn manufacturers are unable to increase prices sufficiently to offset higher raw-material costs, the improvement in spinning margins could weaken. This makes cotton price pass-through one of the most important factors to monitor in the coming quarters. The recovery is not limited to spinning. Downstream segments are also showing improvement, with garment manufacturers reporting healthy order visibility. Home-textile companies have benefited from stronger US demand, improved capacity utilisation and a better product mix.

The broader outlook for Indian textiles remains cautiously positive. Better domestic raw-material availability and greater flexibility in sourcing could provide additional support to industry spreads. However, sustained demand and the ability of companies to absorb or pass on higher cotton costs will determine whether the recent improvement develops into a durable recovery.

India’s export performance also reflects the sector’s resilience. Official data shows that exports of textiles and apparel, including handicrafts, reached Rs 3,25,339 crore in 2025-26, compared with Rs 3,19,573.2 crore in 2024-25, representing growth of 1.8 per cent. This came despite changing global demand, fluctuations in input costs and other trade-related challenges.

India also recorded higher textile and apparel exports to more than 100 international markets during 2025-26 compared with the previous year. With global demand gradually improving and domestic supply conditions becoming more supportive, the textile industry could be entering a more stable phase, provided manufacturers can successfully manage the impact of higher cotton prices.