Why investors are closely watching textile stocks

Shares of textile companies are hogging the limelight . In the last five trading sessions, textile stocks such as Indo Count Industries Ltd, Welspun India Ltd, KPR Mills Ltd and Vardhaman Textiles Ltd, among others, have rallied 10-15%.

Recently, textile minister Piyush Goyal said a proposed ₹10,683-crore production-linked incentive scheme for technical textiles and man-made fibre products will be approved by the Cabinet soon. This is expected to bolster domestic manufacturing as well as exports.

But this is not the only factor driving optimism towards this sector, which was hit hard by the pandemic. Analysts say India is well placed to benefit from the adoption of the ‘China + 1’ strategy. Under this initiative, global manufacturers have started shifting manufacturing operations from China to alternate sourcing destinations, in an attempt to de-risk their supply chain.

"India stands out as a suitable ‘+ 1’ destination due to abundance of raw materials (produces 25% of the world’s cotton), cheaper labour, improving ‘ease of doing business’ and strong manufacturing infrastructure with presence across the value chain," said analysts at Edelweiss Securities Ltd in a report dated 2 September.

"This trend is more pronounced now owing to the US Senate passing a bill banning China’s Xinjiang Cotton (20% of the world’s cotton). With retailers across developed countries hesitant to source cotton from China’s Xinjiang region, orders are now being rerouted to India owing to which India is seeing a rise in its market share," added the report.

Indian textile players have been witnessing higher export orders and are aggressively adding capacities across spinning, processing and garment manufacturing.

Sharing a similar view, analysts at JM Financial Institutional Securities Ltd said, "We believe structural uptick in home textile demand owing to increased ‘work-from-home’ period, higher emphasis on health & hygiene driven by pandemic, duty reimbursement by GOI and market share gain on China+1 theme will drive earnings trajectory going forward."

The domestic brokerage house further added that its channel checks suggest healthy order book for exporters, given the sharp recovery in US/EU markets. "Spread between Yarn and cotton prices continue to remain high and should enable yarn producers to report strong earnings for 2QFY22," said the report.