Recession in international markets, foreign exchange losses and high input costs are all going to combine to make 2009 a grim year for the Indian textile and apparel sector, a new report says.

Ratings agency Fitch Ratings believes sluggish demand will persist until December 2009, and expects the domestic market to see a slowdown too as lower economic growth, low to moderate wage growth and inflation all put pressure on consumer spending.

A number of factors are making this a particularly difficult time for the industry.

Recent investment in new capacity is putting pressure on firms as higher overheads eat into margins, wages and power costs have risen over the past couple of years, and increased pressure on the industry's short-term liquidity is led by increased working capital requirements and lengthening cash cycles.

The report also says some exporters' credit profiles have taken a hit from losses from foreign exchange contracts - many of which have subsequently been financed through debt.

And exporters are seeing inventory levels climb as customers delay offtake, even on confirmed orders.

Fitch also believes the government's recent stimulus package will not "be enough to fully offset the negatives of the current operating environment."