India Ratings & Research (Ind-Ra) has revised cotton outlook to negative for 2015-16 due to decline in domestic yarn production, unlikely recovery in cotton exports and a fall in domestic cotton prices below minimum support prices (MSP).

Earlier, Ind-Ra had given the outlook on cotton sector to negative-to-stable, the rating agency said in a report here.

It attributed factors such as contraction in domestic yarn production for exports, unlikely recovery in cotton exports, and a fall in domestic cotton prices below MSP have pushed domestic cotton stocks high, for the revised outlook.

All these factors, it said, are likely to keep domestic cotton prices under pressure in 2015-16.

Further, the report said that the conversion of China's cotton reserve policy into a direct subsidy policy in April 2014, will increase reserve cotton sales and reduce its cotton imports to half in 2015-16.

Cotton exports from India to China plummeted 26.4 per cent annually over April-October 2014, compared to a 4.3 per cent dip in the previous year.

Lower global cotton prices and the relatively stable rupee will keep the attractiveness of Indian cotton under pressure in the export market in Marketing year (MY) 2015-16.

India's cotton exports to other destinations are unlikely to replace the quantum of lower trade with China.

Domestic cotton consumption and cotton yarn production have shown tepid growth at 3.6 per cent and 2.3 per cent, respectively, over October-November MY14-15, due to a drastic reduction in off-take from Chinese counterparts.

In MY15-16, the agency expects cotton prices to trade lower y-o-y unless the demand of cotton yarn recovers.

Cotton prices (represented by Shanker-6) are likely to trade between Rs 40 per kg and Rs 45 per kg while lint prices will trade in the range of Rs 85-100 per kg for MY15-16.

Ind-Ra expect domestic stock to use ratio for MY15-16 to be near 12 per cent compared to 12.2 per cent in MY14-15.

In 2014-15, operating profitability of Indian cotton ginners and cotton exporters was under pressure due to volatile cotton prices.

Source:- economictimes.indiatimes.com