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Strong domestic as well as export demand will improve year-on-year (YoY) sales volumes of overall textile sector in FY22, said India Ratings and Research (Ind-Ra).

According to the agency, domestic as well as export demand will sustain during the rest of FY22.

Besides, it has maintained the rating outlook of the sector at 'Stable' for the reminder of FY22, expecting a sustained improvement in the sector players' profitability and the continued deleveraging of their balance sheets.

"The strong operating cash flows will lead to an improvement in their credit metrics, despite the likely increase in the working capital requirement on the back of the higher sales volumes and increased capital expenditure."

"The benefits of integrated business operations, healthy balance sheet liquidity and operating efficiencies over FY22 have already been factored into the ratings."

As per the agency, the domestic demand improved over '2HFY21' before declining marginally during '1QFY22', due to the closure of malls and retail spaces in cities.

"The demand is likely to improve from '2HFY22' with the easing of restrictions but remain vulnerable to any further restriction. Also, the demand from spinning mills seems to be recovering ahead of festivities in India."

"During '1QFY22', players witnessed a rise in volumes YoY, although it declined marginally QoQ."

Accordingly, segments such as cotton yarn and fabrics witnessed a higher YoY demand from downstream players during '1HFY22'.

"The domestic demand for home textile has sustained, whereas that for woven fabric and apparels is likely to improve with the opening up of retail shops and malls from '2HFY22'."

Furthermore, the agency expects the export demand to improve moderately in 2HFY22 on the back of accelerated vaccination and 'China Plus One' sourcing strategy.

"The demand is likely to improve further FY23 onwards. Furthermore, the ongoing impact of the sourcing restriction of China (Xinjiang) cotton, could play an important role in boosting the demand."