The Indian textile industry, a cornerstone of the national economy, is showing promising signs of recovery after a challenging period. Contributing 2.3% to India’s GDP and generating 10.5% of export revenue (according to the India Brand Equity Foundation), the sector holds a significant global presence. Ranked third in global textile exports with a 5.4% market share and boasting the second-largest manufacturing capacity worldwide, the industry is predominantly comprised of micro, small, and medium enterprises (MSMEs), which account for 80% of its capacity. However, its reliance on raw materials like cotton and its susceptibility to global market fluctuations makes it inherently cyclical.
While Textile Minister Giriraj Singh has set ambitious targets of reaching a $350 billion valuation and creating 35 million jobs by 2030, the immediate past has presented significant hurdles. Subdued demand and escalating costs over the past two years have resulted in a downturn, with textile stocks underperforming the broader market. This article explores the factors contributing to this slowdown, and the emerging signs of recovery, and highlights two key companies poised for growth in 2025.
The Recent Downturn: A Convergence of Factors
Several interconnected factors contributed to the recent struggles of the Indian textile industry:
- Geopolitical Instability: The Russia-Ukraine conflict in early 2022 disrupted global economic stability, particularly impacting the European Union (EU) through soaring energy prices. This, in turn, affected India’s key export markets – the EU and the US.
- Global Inflationary Pressures: The conflict exacerbated existing inflationary pressures, prompting central banks worldwide to raise interest rates, further straining the global economy. Supply chain disruptions compounded these issues, increasing costs for businesses and consumers.
- Cotton Price Volatility: Even prior to the conflict, cotton prices, a crucial raw material for Indian textiles, were on an upward trajectory. The war-induced uncertainty and rising energy costs intensified this volatility, significantly increasing production costs for Indian manufacturers.
- Erosion of Competitive Advantage: High production costs diminished India’s competitiveness against countries like Bangladesh, which benefited from lower costs and preferential trade agreements.
- Inventory Buildup and Demand Contraction: The confluence of high inflation and economic slowdowns reduced consumer spending, leading to excess inventory buildup among retailers. This prompted order cancellations and significantly impacted Indian manufacturers. The suspension of operations by major retailers like Zara, H&M, and Mango in Russia further exacerbated the situation. This downturn was particularly evident in key textile hubs like Tiruppur, and Tamil Nadu, which experienced significant export declines to the EU.
Emerging Signs of Revival: A Shift in the Tide
Despite these challenges, the industry is showing signs of a potential turnaround. Key indicators point towards a gradual recovery:
- De-stocking Cycle Completion: Industry reports, such as those from JM Financial, suggest that the global de-stocking cycle has concluded. Anticipated demand increases in the second half of FY25, driven by holiday, festival, and wedding seasons, are expected to boost both domestic and export activity.
- Bangladesh’s Political Instability: An Opportunity for India: Political unrest and labour disputes in Bangladesh, the world’s second-largest textile exporter, have created supply chain disruptions for global retailers. This instability has prompted a diversification strategy, with India emerging as a viable alternative due to its stable economy and competitive labour costs. This shift has resulted in increased order bookings and inquiries for Indian textile companies.
- Favourable Input Costs: Declining cotton prices and reduced shipping costs are expected to improve profit margins for Indian textile manufacturers.
Key Companies to Watch in 2025: Capitalizing on the Recovery
Two companies, Arvind Ltd and Welspun Living, are particularly well-positioned to benefit from this anticipated recovery:
Arvind Ltd: A veteran in the Indian textile industry and the world’s largest denim manufacturer, Arvind Ltd is focusing on enhancing its competitiveness and expanding its product portfolio. Strategic investments in operational efficiency (₹50-60 crore) aim to improve cost competitiveness against countries like Vietnam. The company is also diversifying into children’s and women’s apparel, targeting higher profit margins. Capacity expansion and new business opportunities, including contracts with Indian Railways, are expected to drive revenue growth. Recent financial results reflect this positive momentum, with strong revenue and profit growth in Q3 FY25.
Welspun Living: A major player in the global home solutions market, Welspun Living operates across home textiles, advanced textiles, and flooring solutions. The company is pursuing a dual strategy of expansion and debt reduction. A new pillow manufacturing facility in Ohio, US, is expected to significantly contribute to revenue growth. Domestic expansion in its Anjar plant, with a projected revenue potential of ₹450-500 crore, is also underway. The company is aggressively expanding its retail presence through franchise expansion and is focused on reducing its net debt, which has significantly decreased in recent years. Recent financial results show improving revenue and profit figures.
Conclusion: A Promising Outlook
The Indian textile industry is navigating a cyclical recovery. After a period of significant challenges, positive indicators, including rebounding demand, stabilizing input costs, and geopolitical shifts favouring India, suggest a promising outlook for 2025. Companies like Arvind Ltd and Welspun Living, with their strategic investments, expansion plans, and focus on financial health, are well-positioned to capitalize on this resurgence and drive growth within the sector. The convergence of these factors positions the Indian textile industry for a renewed period of growth and strengthens its role in the global textile landscape.
