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Higher raw material cost is likely to impact textile demand during Q1FY23 on a quarter-on-quarter basis. As per India Ratings and Research (Ind-Ra), sustained rub-off impact from high man-made fibre (MMF) prices amid new arrivals will keep domestic cotton prices to remain at the current high levels during Q1FY23.

"Rising cotton and MMF prices are likely to moderate demand for textile fabrics, made ups and garments as the downstream prices will also rise in tandem with the raw materials," said Shradha Saraogi, Senior Analyst, India Ratings and Research.

It generally may also lead to down trading.

"Besides, Ind-Ra expects inventory levels to decline by the end of the current cotton season due to a lower opening stock and a slightly higher consumption. Similarly, the domestic stock-to-use ratio could decline in the new cotton season," the ratings agency said.

Furthermore, Ind-Ra expects cotton yarn and spurn yarn prices to continue to rise due to a higher demand from downstream players as well as export markets.

"Cotton yarn prices increased 3 per cent MoM in February 2022 due to the rise in cotton prices as well as a reduction in the production amid the high export and domestic demand."

"The spreads increased up to Rs 60.14 per kg in February 2022."

According to the ratings agency, MMF products witnessed a drastic rise in prices in February 2022 due to an increase in the crude oil prices.

"Ind-Ra expects the prices to increase further owing to the US ban on Russian oil and US tie-ups in Europe, along with a rise in raw material prices, led by the ongoing geopolitical issues and increased cotton prices."