Industry And Cluster | News & Insights

Textile cos rally as Street bets on gains from US-China tiff

Published: July 29, 2021
Author: Manali bhanushali

Shares of textile makers extended their run-up in an otherwise subdued market as investors bet the local industry would be one of the top beneficiaries of the escalating tensions between Washington and Beijing. Indications of strong demand from the US and European countries also aided sentiment.

About 30 textiles stocks rallied between 5% and 20% Wednesday, with most of them locked in the upper circuit. KPR Mills, Welspun India, Vardhman Textiles, Arvind Fashion, and Siyaram Silk have gained between 30% and 50% in the last month. The Nifty index has declined 1% in this period.

“Indian textile industry is in the cusp of sharp revival with double-digit volume growth in subsequent years mainly in the backdrop of improving business ranking in ease of doing business in India, China plus one strategy globally, competitive labour cost and improving technology,” said Binod Modi, head strategy, Reliance Securities “Notably, India’s textile export to the USA has grown significantly over 45% in 2021 so far aided by growing geopolitical tension between the US and China and this is likely be reflected in export to various countries,” he added.

Investors are also cheering the government’s efforts to revive growth in the domestic textile industry. To provide a level playing field to exporters and make products globally competitive, the government recently extended the Rebate of State and Central Taxes and Levies (RoSCTL) scheme on exports of garments and made-ups till March 31, 2024.

Some companies told analysts recently that they have been operating at a higher capacity. Capacity utilisation is expected to sustain at healthy levels in FY22, and yarn realisation would remain strong on account of the ban on Chinese cotton by the US, said analysts.

“Most textile companies received strong orders from regions such as the US and Europe due to pent-up demand for garment apparel and home textile products as retailers are building up the stock with gradual opening economies in most of these regions,” said Kaustubh Pawaskar, analyst, Sharekhan.

“The augmentation of capacity with value-added products, key export markets focusing on increasing supply from India, and government’s support policies provide scope for textile companies to post robust growth in the long run,” he added.

In the wake of the tensions between the US and China — a big textile exporter— others like Bangladesh, Vietnam and India are vying for a pie of the shift in business from China.

“Availability of raw material in abundance, competitive labour cost and cheap power cost make India one of the strongest contenders to the Chinese dominance in global textiles space,” said Biplab Debbarma, analyst, Antique Stock Broking.

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