Using Textile To Weave A Strong Portfolio & 5 Best Stocks From The Textile Sector
Indian Economy & Market|December 2021
Every adversity has the seed of opportunity and the pandemic has given that golden opportunity to Indian textile industry.
IE&M Research Team

In last few quarters the Indian equity market has given spectacular returns. Most of the sectors barring the few have generated returns in such a short period of time that they have not generated in decades - one of them being textile sector. In last one year the average return generated by them is in double digits. Our analysis of share price of 200 odd textile companies shows that on an average they are up by 148 per cent from their recent lows. Shares of companies like Digjam and Adinath textiles are up by whopping 3456% and 4804% respectively.

Most of the investors will assume that as rising tide lifts all the boat, better performance by stock market in general is helping these companies to show such performance. Nevertheless, some fundamental change has taken place in last one and half year that has led to some structural change that will help the sector to chart a different growth trajectory from here on.

Textile Sector in Brief

The Textile & Apparel (T&A) industry size is USD140 billion in India and it contributes around 5 per cent of India’s GDP. Exports make up 24% of the Textile sector and 12% of the overall export earnings of the country. The T&A sector is likely to witness 10% CAGR over FY20-26E to USD255 billion. The factor that will be helping the sector is first and foremost increased domestic demand due to rising per capita consumption of apparels. Second is work from home culture is likely to stay one or other form, which has led to increased focus on home improvement products. In addition to these robust government policies are acting as stimulants for the sector.

The best part of the growth for the sector will come from exports, which have remained almost stagnant in over a decade, due to structural changes in the demand pattern being witnessed by India. Nevertheless, they are expected to grow faster than the domestic market at 11% CAGR (from USD34bn in FY20 to USD 65bn in FY26E), primarily driven by growth in home textiles and apparels.

Growth Drivers

Higher Growth from World's Largest Economy

USA is the biggest and most crucial geography for Indian home textile players as the country being the largest consumer market in the world, besides the largest economy in the world and the large proportion of organised retail in the country. All these make USA an important market not only for India but for all the textile exporting countries.

India has a strong presence in the home textiles category in the US with around 40 per cent share in the USA total imports. The USA is currently witnessing higher retail demand as a result of subdued spending during the Covid-19 pandemic lockdowns and stimulus cheques Americans had received, which have boosted disposable income significantly. Further, reopening of the economy (including retail outlets) and regaining of lost employment by the broader population has enhanced this effect even more.

‘China+1’ Adoption to Spur Demand

Globally manufacturers are moving away from China to diversify and shift manufacturing to other competitive nations. This initiative is known as the ‘China + 1’ strategy. Manufacturers are avoiding concentration in any one geography and diversifying production for more long-term stability. Also, the Covid-19 induced supplychain disruptions coupled with the US-China trade tensions have accelerated the pace at which companies are diversifying their base.

Manufacturers are looking for replacements and India is the most obvious alternative to China due to an abundance of raw materials and resources, cheap labour, improving ‘ease of doing business,’ and large manufacturing infrastructure. In fact, Indian cotton is 30% cheaper than Chinese cotton and Indian labour is 3 times less expensive than China. Thus, global manufacturers do not view China as the cost-effective haven anymore. Further, India is the largest producer of cotton in the world.

China has 39% share in global home textiles exports, followed by India with 11% share; thus, India is a suitable ‘+1’ as it is the second largest home textiles exporter.

What is also acting in favour of India is the US banning Xinjiang cotton and its products from being imported into the country. Consequently, a bill was passed by the US Senate making the ban official. Following this, China has seen its market share tumble in nearly every cotton category. Market share gains for India are evident in Cotton Made-ups, and within that, especially in Bed Linen where market share has shot up from 51% in Jan-Jun’20 to 62% in Jan-Jun’21. Also, the US’ ban on Xinjiang cotton exports is bound to trigger material shift in global apparel trade as China is the world’s leading apparel exporter, accounting for more than 35% of the global trade. Also, more than 80% of China’s cotton originates from the Xinjiang region.

Share in US Imports – Cotton Made-ups

Country-wise Export of Cotton yarn (2019)

China T&A Exports to US (USD bn) - 2020

Government Supportive Policies

PLI in Man Made Fibre (MMF) and Technical Textiles was the need of the hour India has remained stagnant in MMF-based apparel in the EU while Vietnam and Bangladesh have gained share from China. It is abundantly clear that India is not globally competitive in MMF based textile products (Chinese MMF is 20-25% cheaper than India). Mills in India hardly have the bandwidth to churn out volumes that would make Indian MMF as competitive as China.

Understanding the need to make India a global MMF sourcing destination, government has unveiled a PLI for MMF-based Apparel and Technical Textiles. The main objective of the scheme is to enhance India’s manufacturing capabilities by increasing investment and production in MMF segment and Technical Textiles. The scheme applies to 40 categories of apparels/made-ups in MMF and 10 categories of Technical Textiles to the extent of ₹10,683 crore. The investment will be made over a 5-year period with FY20 as the base year. As per CRISIL, the PLI will boost competitiveness of exports by 4-5% (offsetting a portion of the tariff impact).

Fibre Consumption by Mills

In the following pages we have handpicked some of the best companies from this sector that you can weave into your portfolio to build a strong portfolio.

Gokaldas Exports Limited

• Highest revenue growth of 30% in Q2FY22

• US contributes roughly 65 per cent of sales

• A rapid expansion of its production capacity

• Capacity is fully booked for Q3FY22 and Q4FY22

• A structural long term story

Continue reading your story on the app

Continue reading your story in the magazine

MORE STORIES FROM INDIAN ECONOMY & MARKETView All

Revisiting Some Important Principles of Investing

80% of gains come in 20% of time.

2 mins read
Indian Economy & Market
April 2022

I've Never Heard So Many Lies

Says James G. Rickards, the lawyer, economist, and investment banker with 40 years of experience working in capital markets on Wall Street. He feels the war in Ukraine will last longer than most expect, and will amplify the inflation. In the end, Putin will prevail in Ukraine, while the Ukrainian people and Western consumers will pay the heaviest price.

6 mins read
Indian Economy & Market
April 2022

Unleashing the Power of Women-led MSMEs

There is abundant talk of tapping the demographic dividend' that could take India to a higher level of sustainable growth.

4 mins read
Indian Economy & Market
April 2022

Indian Economy is Immune to Everything Global

The world economy was in the recovery zone when out of blue came the €CION Russia-Ukraine war.

3 mins read
Indian Economy & Market
April 2022

HOTEL SECTOR Finally LIGHT At the End of the TUNNEL

Hotel sector had remained one of the worst hit sectors due to pandemic. Six quarters down the line and they are emerging with flying colours.

10 mins read
Indian Economy & Market
April 2022

Darjeeling after the First Wave of Pandemic

The COVID-19 pandemic created short-term disruptions but provoked long-term changes in how the world lives. The economic and social disruption was devastating. As the world faced a global health emergency, travel and tourism industries came to a halt. The pandemic not only impacted the travel decision of tourists but also disrupted the lives of those associated with the industry. But now travellers are gaining confidence to make holiday plans. Author, Photographer and an ardent traveller Swapan K Banerjee visits Darjeeling and Puri.

4 mins read
Indian Economy & Market
April 2022

Is The U.S. Trying To Destroy The Dollar?

The U.S./ IMF just demonstrated to the entire world that it has the willingness and power to smash the ability of a world superpower to do anything useful with its foreign reserves. They can all be made worthless based on a political decision. The decision to cut offthe Russian central bank’s access to $630 billion of foreign reserves has truly shaken the globe. Most of that is held in Special Drawing Rights, a unit of account maintained by the IMF as a claim on hard currencies, which means mostly dollars. Jeffrey Tucker says that a sudden decision to disable that access tremendously devalues the dollar as a store of value for central banks around the world. The implications could be devastating for the dollar as the de facto worldreserve currency.

6 mins read
Indian Economy & Market
March 2022

7 Crucial Characteristics For Entrepreneurs Of Today

Sudip Bandyopadhyay Group Chairman of Inditrade (JRG) Group of Companies, sits on the Boards of a number of companies. He was MD of Reliance Securities (Reliance Money) and on the Board of several Reliance ADA Group companies. Also, former MD and CEO of Destimoney, promoted by New Silk Route.

3 mins read
Indian Economy & Market
March 2022

Buy-and-Hold Horror Shows As Stocks Plunge Below Year 2000 Levels

Buy-and-hold only works if you buy low and hold till prices are high and then sell before they plunge again

2 mins read
Indian Economy & Market
March 2022

And telangana Government takes the Lead

IN a major development National Stock Exchange has collaborated with the Telangana government to encourage and support the MSMEs (micro, small & medium enterprises) of the state for listing.

1 min read
Indian Economy & Market
March 2022