The textile industry is seeing a major shift in terms of growth. It’s outperforming. Re-rating of the entire Indian textile industry in focus. Hold tight for big-time returns as robust export opportunities give strong and sustainable earnings visibility Textile company shares bucked the weak market trend and rallied on Thursday as improving exports of cotton and made-up apparel, along with attractive valuation and earnings growth visibility, made analysts bullish on the sector.
Shares of Super Fine Knitters, Super Spinning, and Filatex India rallied up to 10 percent on Thursday. Those of JCT, Surat Textile, Swasti Vinayaka, KPR Mill, Sumeet Industries, Bhandari Hosiery, Minaxi Textiles, and Bombay Rayon, gained between 4 percent and 5 percent, and Gokaldas Exports, Suryaamba Spin, and Vardhman Textiles also ended in the green.
In comparison, the S&P BSE Sensex fell over 1 percent, or 621 points, and closed the session in the 60,000-mark. Further, the US-China trade war and imposition of additional duties on Chinese T&A imports have forced US-based importers to scout other destinations such as India.
In December, the US signed into law legislation that bans imports from China Xinjiang region over concerns about forced labor. As Xinjiang makes up nearly 20 percent of the global cotton market, the supply re-adjustment on account of this ban has led to more demand for Indian cotton and cotton yarn, analysts at Spark Capital said while initiating coverage of the sector.
They highlighted that cotton and cotton yarn exports from India have surged at a 34 percent CAGR (between April and October) from FY19-21. The US market accounts for 15 percent of global T&A imports. Countries such as China, Bangladesh, Vietnam, and Cambodia have become reliant on India for their cotton requirements after the ban, and Indian cotton exports have skyrocketed in the past eight months. Separately, India has witnessed increased exports in the made-up segment. The demand in the segment has significantly increased because of lockdown-led home confinements and the pandemic-induced new standard operating procedures (SoPs) which has led to the underlying volume demand improving. India being the second-largest supplier of made-ups naturally benefitted on account of Chinese suppliers losing market share, Spark Capital pointed out.
The government’s stance on free trade agreements (FTAs) is a welcome policy change for the T&A players. The stocks in the sector are also ripe for a re-rating as robust export opportunities give strong and sustainable earnings visibility, say analysts at ICICI Securities. Revival in the hospitality sector, along with duty reimbursement by the government of India, and market share gain on China 1 theme will drive earnings trajectory. Spread between yarn and cotton prices continues to remain high and should enable yarn producers to report strong earnings for Q3FY22, said a note by JM Financial.
From an investment viewpoint, analysts suggest playing the theme by going long on Suryaamba Spin, Vardhman Textiles, Trident, Sutlej Textiles, Alok Industries, KPR Mill, Nitin Spinners, Welspun India, Indo Count, Himatsingka Seide, Gokaldas Exports. This should be seen as a buying opportunity. Whenever market gives a dip, focus on these stocks.