Amidst the escalating Bangladesh crisis, textile stocks such as Gokaldas and Kitex have experienced significant gains, surging up to 20%. This surge in stock prices is largely driven by investor optimism that the ongoing turmoil in Bangladesh will benefit the Indian textile sector. On Tuesday, shares of textile, garment, and apparel companies such as Gokaldas Exports, Century Enka, and SP Apparels rallied up to 20% in response to the crisis.
Gains in Textile Stocks Amid Bangladesh Crisis
Gokaldas Exports saw its shares skyrocket by 18%, reaching a new 52-week high of ₹1,089.40 on the NSE. This surge is largely attributed to investor expectations that the Bangladesh crisis will shift textile exports to India. Other notable gainers included KPR Mill (16%), Arvind Ltd (11%), SP Apparels (18%), Century Enka (20%), Kitex Garments (16%), and Nahar Spinning (14%).
The worsening situation in Bangladesh is anticipated to have a detrimental impact on the country’s textile sector, a major global exporter. As a result, international buyers are increasingly exploring alternative markets, with India positioned as a favorable option. Industry experts suggest that if 10-11% of Bangladesh’s textile exports are redirected to Indian hubs like Tiruppur, India could potentially see an additional $300-400 million in business per month.
Impact of the Bangladesh Crisis on India’s Textile Industry
The outlook for India’s textile and apparel industry appears promising despite the global slowdown in some key markets. The sector is benefiting from increased government investments, rising domestic demand due to higher disposable incomes, and the growing popularity of ‘fast fashion’. These factors are expected to drive the industry forward even as demand fluctuates in other regions.
Vikram Kasat, Head of Advisory at Prabhudas Lilladher, highlighted the potential benefits for India’s textile sector. He remarked, “The unrest in Bangladesh is likely to harm the country’s brand value with US and European manufacturers, who often prefer Bangladesh. Consequently, India’s garment and textile sector might gain from the current protests and unrest in Bangladesh.”
However, the crisis poses challenges for yarn exporters in India. Bangladesh is a significant market for yarn, accounting for 25-30% of exports. Neeraj Jain, Joint Managing Director of Vardhman Textiles, expressed concerns during an earnings call, noting, “While the immediate impact is minimal, prolonged unrest in Bangladesh could affect demand. For now, there are no major issues.”
The situation in Bangladesh has become increasingly volatile, with anti-government protests and clashes resulting in numerous casualties. On Monday, Prime Minister Sheikh Hasina resigned and fled the country, and an interim government is expected to be formed to manage the crisis. Bangladesh, the second-largest garment exporter globally, exported approximately $47 billion worth of ready-made garments in 2023 and holds a significant market share in the European Union, the United Kingdom, and the United States.
Future Prospects and Global Demand Outlook
The ongoing Bangladesh crisis could present opportunities for Indian companies in the export market as global brands may seek to diversify away from the troubled region. However, the crisis also negatively impacts Indian companies that source products from or sell in Bangladesh. The competitive global market, with major textile and garment industries in Bangladesh and China, remains a challenge. Despite this, strong and well-integrated players with comprehensive solutions are likely to remain competitive, as noted by Arvind Limited.
Looking ahead, the global demand outlook for calendar year 2024 is expected to improve compared to 2023. Indian home textile and apparel exporters anticipate better demand in the coming quarters. Analysts at JM Financial Institutional Securities forecast that normalization of demand, particularly in the hospitality and residential sectors, could lead to a recovery in export demand for Indian exporters.
The extended growth prospects for the Indian textile sector over the next three years are bolstered by impending Free Trade Agreements (FTAs) and the ‘China+1’ strategy. Additionally, the Government of India’s increased focus on the textile sector, including rebates and Production-Linked Incentives, and the deflation in commodity prices (such as cotton) suggest a favorable earnings trajectory for FY25. The deleveraged balance sheet among Indian textile players provides ample room for revenue growth as demand drivers strengthen, signaling a positive financial outlook for the sector.
Overall, the Bangladesh crisis is proving to be a significant catalyst for change in the global textile market, with Indian companies positioned to capitalize on the shifting dynamics.
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