The apparel retail sector is likely to witness a 40-45 per cent decline in revenues during 2020-21, and a demand recovery is expected in the festive season this year if COVID-19-related fears subside, according to a report by India Ratings and Research.

The rating agency said it expects companies in the apparel retail sector to weather the near-term demand volatility and sluggishness through effective liquidity management, while also improving their competitive advantage.

"Ind-Ra expects the apparel retail sector revenues to fall 40-45 per cent in fiscal 2020-21... (It also) expects a demand recovery from the second half of 3QFY21 during the festive season, assuming that COVID-19 related fears will subside," the rating agency added.

Ind-Ra said a continued countrywide lockdown beyond the second quarter of 2020-21 or a prolonged impact of the COVID-19 pandemic will lead to a further downward revision of revenue estimates.

"The 2020-21 fiscal will see a sharp recovery year-on-year with a lower base effect and new store openings as the organised sector's share continues to grow," it said.

Ind-Ra said that by the third quarter of the current financial year, it expects overall sales of the apparel retail sector to touch around 85 per cent of the pre-COVID-19 levels.

"Consumer behaviour patterns such as 'revenge buying' may play out and support revenues," it noted.

The rating agency said it expects pre-COVID-19 level demand in the apparel retail sector by the fourth quarter of 2020-21, with the impact of COVID-19-led demand erosion gradually declining, and economic recovery accelerating.

The lower base effect due to COVID-19 would also support year-on-year quarterly revenues, it added.