The textile sector is witnessing structural changes; Here’s how to play the theme – World Affairs SRS

The textile sector is witnessing structural changes; Here’s how to play the theme

– World Affairs SRS

Shares of textile companies eased a weak market trend and managed to rally on Thursday as attractive valuations and earnings growth visibility along with improved exports of cotton and made-up apparel managed to rally, telling analysts about the sector. accelerated. ,

Super Fine Knitters, Super Spinning and Philatex India gained up to 10 per cent intra-day intra-day gain. Meanwhile, JCT, Surat Textiles, Swasti Vinayak, KPR Mills, Gokaldas Exports, Vardhman Textiles, Sumeet Industries, Bhandari Hosiery, Minaxy Textiles and Bombay Rayon rose 4-5 per cent.

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In comparison, the S&P BSE Sensex fell over 1 per cent or 900 points, intra-day and slipped below the 60,000 mark.

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The COVID-19 pandemic has transformed the global textile and apparel (T&A) supply chain, with many apparel brands prioritizing more than one sourcing destination. In addition, importers in the USA have been scouting for other destinations such as India due to the US-China trade war and subsequent imposition of additional duties on Chinese T&A imports.

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“In December 2021, the US signed legislation that bans imports from China’s Xinjiang region over concerns about forced labor. As Xinjiang accounts for about 20 percent of the global cotton market, the ban will cause a supply recovery. : The adjustment has led to higher demand for Indian cotton and cotton yarn,” said analysts at Spark Capital, beginning their coverage of the region.

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He further informed that the export of cotton and cotton yarn from India has grown at a CAGR of 34 per cent (between April and October) from FY 19-21. And since, the US market accounts for 15 percent of global T&A imports, it is one of the major consumers of global T&A trade.

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Countries like China, Bangladesh, Vietnam, Cambodia have become dependent on India for their cotton requirements, Indian cotton exports have increased in the last 8 months.

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Separately, India has seen an increase in exports in the made-up segment owing to the underlying demand for home furnishing, and has witnessed strong uptake in the last 18 months.

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“Demand in the segment has increased significantly due to lockdown due to home confinement and pandemic induced new Standard Operating Procedures (SOPs), thereby improving underlying volume demand. India being the second largest supplier of made-ups is natural. has benefited significantly. Chinese suppliers are losing market share,” Spark Capital reported.

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To put things in perspective, exports of cotton and made-ups constituted about 37 per cent of the total textile exports in FY2011.

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In addition, various schemes announced by the Government of India, including State and Central Taxes and Levies (RoSCTL; Incentive Scheme for Textile Exporters), MITRA (Scheme for Textile Parks), and Performance Linked Incentives (PLIs). Made fiber segment is also in favor of change in this sector.

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Moreover, the government’s stand on free trade agreements (FTAs) is also a welcome policy change for T&A players.

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“Since 2014 the government has been hesitant to sign any new meaningful FTAs, resulting in the Indian T&A sector losing market share to Bangladesh and Vietnam. However, the fresh FTAs ​​are considered a major earner for the Indian textile industry. should act as a catalyst and it should be able to capture share across product categories,” said Spark Capital.

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Analysts at ICICI Securities say stocks in the sector are also poised for re-rating as strong export opportunities give strong and stable earnings visibility.

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“Revival in the hospitality sector, with duty reimbursement by the Indian government, and increasing market share on China+1 subject to further earnings trajectory. The dispersion between yarn and cotton prices remains high and yarn producers will be able to report Should. Strong earnings for Q3FY22,” said a note by JM Financial.

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From investment perspective, analysts suggest Vardhman Textiles, Trident, Sutlej Textiles, Alok Industries, KPR Mills, Nitin Spinners, Welspun India, Indocount, Himmatsingka Seed, Gokaldas Exports to play the theme by going long.

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