Indian Textile Indst. to Benifit from Neighbors

Textiles and apparel account for around 13% of India’s exports. As per Assocham, an industry association, the sector employs about 35m people. According to a recent study by India Today, a weekly news magazine, 700,000 jobs have been shed in the sector, both by organized and unorganized players. But that’s not all we might be in for good times ahead, as we might profit from woes of Pakistan and China, as the later is seeing pressures on cost due to appreciation of RMB (Chinese Yuan) and wage increases in China, cost gaps with countries like India, Pakistan & Bangladesh have narrowed. India can be one of the largest beneficiaries.

Indian companies are gaining from lower volumes or stagnating volumes from Pakistan. Given the increased concerns on terrorism in Pakistan, almost no company wants to increase their volumes from Pakistan. Big ticket retailers mentioned of contingency plans to move orders out to other countries, including India, if the internal situation in Pakistan worsens.

India will also see incremental benefit if growth in China slows, cost pressures in China increase and Pakistan remains embroiled in social strife and tension. India is set to gain from the Rupee depreciation, but the fruits won’t come to the surface as many Indian companies have hedged their exposure when rupee was higher and the next couple of quarter’s forex losses are likely to be high. The relief from lower rupee will be visible primarily in FY10.
Having cited all the above mentioned factors there is a flip side, and certain roadblocks to India stamping its authority on global textile market. Cotton prices and raw material prices are up 30%-50%. At Rs47-48/ US$, we can absorb the cost increases. But we are hedged for the next two quarters and so will realize the benefits only after that.
Due to the current financial Tsunami whose effect is now seen on the main street, US retailers are reducing inventories and as a result we expect that Indian companies will see increase in inventories and also further pressure to reduce cycle times. The sourcing companies maintain that given the sharp slowdown in consumer sentiments in USA and Europe, the focus on costs is increasing by the day. All in all opportunities always come with some sort of risk’s , they have to be taken to seize the moment.


*The Source of data and information for the above article was from a report by CLSA.