Why textile stocks are rallying
Premium- Increased government intervention is said to be one of the favourable factors that are driving optimism towards this sector
Shares of textile companies such as KPR Mills Ltd, Gokaldas Exports Ltd, Vardhaman Textiles Ltd and Nitin Spinners Ltd, among others, have seen steep rallies of 130-270% in the last year. A combination of favourable global and company-specific factors is said to have resulted in this sharp up move.
Increased government intervention is said to be one of the favourable factors that are driving optimism towards this sector. "Several incentives such as RoSCTL, MITRA, and PLI for the Man-Made Fibre segment have been announced over the past 12 months," analysts at Spark Capital Advisors (India) Private Limited said in a report dated 3 January. Analysts note that since 2014 the Indian government has been hesitant of signing any new meaningful free trade agreements (FTAs), which led to Indian textiles and apparels losing market share to Bangladesh and Vietnam. “However, we see the government being more open to FTAs with the Textile Minister of GoI confirming that several of them could be signed in FY22," added the Spark report.
Another factor that is aiding exports for Indian textile companies is the China + 1 theme. According to analysts at ICICI Direct, in the past few quarters, the textile sector has seen strong customer interest owing to many large global retailers diversifying their sourcing and reducing dependence on China. Overall order booking from India has increased rapidly due to the China+1 strategy of global retailers, they said in a report on 28 December. They also added that some readymade garment exporters stocks like KPR Mills and Gokaldas Exports have seen a significant re-rating due to deleveraging of balance sheets.
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While the textile stocks continue to enjoy investors’ attention, on the flipside, the resurgence of Covid cases in the developed nations, especially the key markets of the US and Europe, could derail the recovery in exports, analysts caution.
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