Indian Cotton Yarn Industry Poised for Strong FY27 Margin Expansion

The Indian cotton yarn industry has entered FY27 on a stronger footing after nearly three years of subdued performance. CareEdge Ratings attributes the recovery to easing U.S. tariff-related uncertainties, stronger order flows from apparel and home textile exporters, renewed demand from China, and improving sentiment surrounding the proposed India–UK and India–EU Free Trade Agreements.

These developments helped improve business conditions during the final quarter of FY26 and are expected to continue supporting the industry in the current fiscal year.

Supply Rationalisation Strengthens Industry Fundamentals

A major structural change has reshaped the cotton spinning industry over the past few years.

According to CareEdge Ratings, nearly 10–12 million spindles have exited the market, reducing effective spinning capacity to around 40–44 million spindles. Most closures occurred among smaller spinning mills operating with fewer than 30,000 spindles, where outdated machinery, rising electricity costs, weak profitability, and financial constraints made operations unviable.

The report notes that these capacity reductions are largely structural rather than temporary, creating a healthier demand-supply balance for organised manufacturers.

Higher capital costs for establishing new spinning facilities also reduce the likelihood of rapid capacity additions, further supporting industry pricing.

Cotton Price Parity Restores Global Competitiveness

Indian cotton yarn exports have historically accounted for approximately 25–35% of domestic production.

After facing challenges in FY23 due to higher domestic cotton prices relative to international markets, India’s competitiveness has improved as domestic cotton prices have broadly aligned with global prices.

The report states that cotton yarn spreads have recovered from approximately ₹95–100 per kg during FY26 to around ₹120–125 per kg since April 2026. The improvement has been supported by:

• Better domestic demand
• Stronger export orders
• Tighter supply conditions
• Restoration of cotton price parity

The temporary removal of import duty on cotton until October 31, 2026, is also expected to help maintain competitive raw material pricing during FY27.

Cotton Yarn Exports Recover in FY26

India’s cotton yarn exports recorded a modest recovery during FY26 after declining in FY25.

Exports increased by 3% to 11.83 lakh tonnes, with momentum strengthening significantly during the final quarter of the fiscal year.

Key export highlights include:

• FY26 exports rose 3% year-on-year to 11.83 lakh tonnes
• Q4FY26 exports increased 11% year-on-year to 3.38 lakh tonnes
• Exports to China surged 121% during FY26
• Q4FY26 exports to China jumped 339% year-on-year

CareEdge Ratings attributes the stronger Chinese demand to reduced cotton acreage, lower domestic cotton production, improved textile demand within China, and the cost advantage of importing yarn instead of raw cotton.

FY27 Profitability Outlook

CareEdge Ratings expects the favourable operating environment to continue during FY27.

The report forecasts:

• Around 10% revenue growth
• 3–4% volume growth
• Higher sales realisation supporting the remaining growth
• Operating margins improving by 150–200 basis points over FY26

However, the report cautions that rising conversion costs and inflationary pressures are expected to partially offset gains from stronger yarn spreads.

Long-Term Outlook Depends on Global Factors

While FY27 appears favourable, CareEdge Ratings notes that sustaining profitability beyond the current fiscal year will depend on several external factors, including:

• Chinese demand trends
• Domestic and international cotton price movements
• Global apparel and home textile consumption
• Geopolitical developments
• Progress of international trade agreements

Any renewed divergence between Indian and global cotton prices or disruptions in export markets could affect the industry’s competitiveness.

CareEdge Ratings’ View

According to CareEdge Ratings, the cotton yarn industry is experiencing one of its strongest operating environments in recent years due to structural capacity correction and improving demand conditions.

The agency believes organised and efficient spinning companies are better positioned to benefit from the current recovery. At the same time, long-term sustainability will depend on maintaining global competitiveness and navigating demand fluctuations across major export markets.