Motilal Oswal expects the Indian textile sector to expand by 18-20%, citing improved order execution and margin recovery in early FY27. The brokerage has identified five key stocks to monitor, while noting that future performance remains sensitive to export demand and cotton price volatility.
Analysts at Motilal Oswal have released a positive outlook for the Indian textile sector, projecting that the industry is entering a phase of sustained performance. The sector reported a strong ~18% growth in the first quarter of FY27 compared to the previous year, helped by a lower base effect and better-than-expected order execution. The report suggests that this momentum is likely to continue, with the brokerage forecasting an 18-20% expansion for the sector in the coming period.
Sector Growth and Valuation
The brokerage anticipates that profit margins will improve as cotton prices stabilize. Based on these expectations, Motilal Oswal projects that the companies under their coverage will see an average annual growth of 14% in revenue, 27% in operating profit, and 38% in net profit between FY26 and FY28. Because of this high visibility on future earnings growth, the firm believes a valuation premium of 7-10% above the historical average is justified.
Historically, the sector has traded at a long-term average price-to-earnings (P/E) ratio of 24x. Investors should note that this valuation premium assumes the projected growth targets are actually met. If earnings growth falls short of these expectations, the stock valuations may face downward pressure.
Top Picks in Apparel and Home Textiles
Motilal Oswal has highlighted five companies that they believe are well-placed to benefit from this sector trend. In the apparel segment, the brokerage has named Gokaldas Exports, Arvind, and Pearl Global Industries as preferred choices. For the home textile segment, Indo Count Industries and Welspun Living are highlighted as key contenders.
Risks to Consider
While the outlook is positive, the report also identifies several factors that could pose risks to this growth. The most prominent concerns include the volatility of cotton prices, which can directly squeeze profit margins if companies cannot pass on the costs to customers. Additionally, the textile sector is heavily dependent on export markets, particularly the United States and Europe. A slowdown in demand from these regions could negatively impact order volumes.
Other variables that investors should monitor include potential changes in government export incentives, fluctuating freight and fuel costs, and any updates regarding import duties on cotton. The final performance of these companies will likely depend on how effectively they manage these operational challenges while maintaining order flow.
For investors following these companies, the most important updates to track in the coming quarters will be management commentary on order booking, any changes in margin profiles, and stability in raw material costs.