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Fitch predicts negative outlook for Indian T&C sector in 2009

BS Reporter  |  New Delhi 

International rating agency Fitch Ratings has predicted a negative outlook for Indian textile and clothing sector in 2009. While the impact of domestic players is not so significant, the exporters are going to have a tough time ahead, the report said.

The Fitch report says that the Indian textile and clothing sector (T&C), which is undergoing a challenging phase, is leading to weaker credit profiles.

“Profitability has been hit by a number of factors like high cotton prices, inflation–led hikes in wages and other input costs, the higher cost of credit and forex losses. Although revenue growth during the first half of FY09 (H109) was satisfactory for most of the companies rated by Fitch, the agency feels that this was mainly because of new capacity coming on stream and sales in anticipation of the peak season (October–December) in the domestic market. However, margins have come under pressure primarily due to high input costs and higher overheads on the back of increased capacities. Fitch has also seen increased pressure on the short–term liquidity of the industry led by increased working capital requirements and lengthening cash cycles,” the report said.

Fitch’s demand outlook for the sector is cautious; and the agency expects the current scenario of slower demand to last at least until December 2009. With the recession in developed markets, Fitch expects textile demand to remain muted, which will be reflected in the performance of T&C exporters. The agency expects domestic demand to also come under pressure, as lower economic growth, low to moderate wage growth and inflation put pressure on consumption expenditure.

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First Published: Mon, December 15 2008. 15:27 IST