Cotton futures in India, the world's second-largest grower, are expected to drop this week due to supplies from the new harvest amid sluggish demand from millers, while estimates of higher output are also seen weighing on sentiment.

Supplies from the new harvest have started coming into the local markets in small quantities and are expected to gain pace in the coming weeks, spot traders said.

"Arrivals from the new season crop are expected to keep cotton prices lower in the short term," said Arun Kumar Dalal, a trader from Ahmedabad, a key market in Gujarat. New supplies start from October.

Daily arrivals have been around 50,000-60,000 bales and are expected to reach 90,000 bales by next week, spot traders said. The government estimated cotton output in 2013/14 at a record high 35.3 million bales as against 34 million bales a year earlier.

Traders' associations and spot traders have forecast cotton output in the range of 37 million to 38 million bales in 2013/14. According to spot traders, cotton crop in Andhra Pradesh, the third-largest producer state, will not be affected much by cyclone Phailin.

A mass evacuation saved thousands of people from India's fiercest cyclone in 14 years, but aid workers warned a million would need help after their homes and livelihoods were destroyed.

Cotton crop in Andhra Pradesh remained largely unaffected by Phailin, but there could be some cotton crop damage in Odisha, Kotak Commodities said in a research note. "Demand from millers is weak because moisture content is high in the new supply, while export demand is also subdued," said Dalal.

In September, India withdrew incentives for export of cotton and yarn, a value-added product used by textile mills, a move that could cut exporters' margins in the world's second-biggest exporter of the fibre.

The November cotton contract ended 0.60 percent higher at 20,210 rupees per bale of 170 kg each on the Multi Commodity Exchange. In New York, the December cotton contract on the Intercontinental Exchange was up 0.16 percent at 83.74 cents per lb at 1235 GMT.