Uncover the threads weaving prosperity into textile stocks and what lies ahead.
Textile stocks are riding on the thread of success. While the Nifty benchmark index has faced a slowdown over the past month, textile stocks are experiencing a remarkable rally.
So, the question for today is: What is causing this surge in textile stocks, and what can we expect in the future?
Let’s delve deeper and uncover the story.
Textile companies are spinning a tale of success, and these strides are far from small – they have taken substantial leaps ahead.
To understand it better, let’s look at the performance of some textile stocks in the past month.
Gokaldas Exports’ stock has surged by an impressive 50.02% in the past month, while Himatsingka Seide’s shares have climbed by 16.59%. Arvind Limited also rides the wave with a strong gain of 31.07%. Even Vardhman Textiles and KPR Mills contribute to this positive trend, with gains of 8% and 20.11%, respectively.
In comparison, the Nifty 50 Index has seen a dip of -2.27% during the same time frame. But a few things are favourable for textile companies, so they rally.
*Performance data from 1st August to 31st August 2023
Reason Behind the Rally of Textile Stocks
Falling Cotton Prices
The cost of one quintal of cotton was Rs 16,366 on August 29, 2023, according to the Cotton Association of India. This reflects a decrease from the price of Rs 18,250 at which the same amount of cotton was selling exactly a year ago. This drop in cotton prices has the potential to reduce the expenses on raw materials for textile companies and make them more profitable.
Lower Inventory By Global Retailers
As mentioned by CNBC TV18, big retailers like TJX, Walmart, and Target have been working on having less inventory in their warehouses. But these companies are also expecting that there will be more demand soon. For example, TJX believes that the total sales in its stores will go up by 3-4% for the year FY24.
When global retailers like TJX, Walmart, and Target have fewer things in their inventory storage, it can actually be beneficial for Indian textile companies. This is because these global retailers might start buying more things from them when the demand increases.
Demand Revival in the Indian Landscape
As outlined in a CNBC TV18 report, key figures within the Indian textile industry express optimism regarding the revival of demand in the latter half of FY23.
For example, Welspun India believes that the demand will pick up during the festive season across the globe.
China+1 Strategy Benefiting India
The ‘China Plus One’ strategy adopted by international companies yields positive results for the local textile industry. Indian exporters benefit as they capture a larger portion of the market in the United States and other nations. For instance, in the cotton sheets category, India’s share of imports to the US has increased from 52% in 2022 to 59% in 2023. Additionally, India’s share of terry towel imports to the US has grown from 39% to 45%. These gains for India have come at the expense of China, which has seen its market share decrease in these categories.
Currently, the textile companies and their investors are having a gala time. However, there are two persistent factors to consider: the demand projections worldwide and the potential risk of a recession in the US. We can only wait and see what happens next.
That’s it for today. We hope you’ve found this article informative. Remember to spread the word among your friends. Until we meet again, stay curious!
*The companies mentioned are for information purposes only. This is not an investment advice.