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Good news for the textile industry: production and exports are expected to rise.

Textile industry needs to come out of comfort zone

Introduction:

The textiles industry in India seems to be recovering after a prolonged slowdown caused by inventory pileups and the economic impact of the COVID-19 pandemic and Russia-Ukraine war. Both production and exports have seen positive growth over the last few months, which experts believe may sustain in the near future.

Analysis of this news for a layman:

The textiles industry includes companies involved in the production and export of fabrics, yarns, apparels and other textile products. After seeing a contraction in production and exports over the past year, the industry has now seen three straight months of expansion. Experts believe inventory oversupply from the pandemic has normalized and demand from major export markets like the US and EU is improving ahead of the holiday season. Overall there are positive signs of revival in what is a very important labor-intensive industry for the Indian economy.

Original Analysis:

The pickup in textiles production and exports is a healthy sign for the broader Indian manufacturing sector. However, the growth levels indicate there is still ground to cover before reaching pre-pandemic levels. The industry saw a 6.5% production shortfall compared to fiscal year 2019-20. The current uptick seems to be more tied to festive holiday inventory buildup and pent-up export demand. For sustained long-term growth, improved competitiveness and export parity will need focused policy attention. Raw material supply security also needs to be monitored considering global macroeconomic uncertainties.

Impact on Retail Investors:

For retail investors, the improved outlook for textiles can offer secondary investment opportunities. With a positive turnaround underway, investors may seek stocks of export-driven textiles companies, fabric manufacturers, apparel brands and retail chains. Stronger domestic demand and government production-linked incentive schemes also improve the investment case. However, factors like high inflation, rising interest rates and a global slowdown pose risks. Investors should assess impact on profit margins, debt levels and valuations before investing.

Impact on Industries:

The broader textiles value chain stands to gain the most, including sectors like cotton farming & production, fabric mills, garment manufacturing and fashion retail. Improved capacity utilization and business orders will drive job creation as well. Related industries like packaging, chemicals and dyes also benefit. Transport and logistics sectors facilitate greater inter-state and export volumes. On the flip side, industries competing for labor, real estate and limited capital flows may see pressure if growth sustains.

Long Term Benefits & Negatives:

In the long run, higher textiles output and exports can aid GDP growth and increase forex reserves. It supports the government’s Make in India and vocal for local policies. Sustained growth creates economic multiplier effects across supporting sectors. However, factors like technology adoption, skill development and access to affordable capital are vital to prevent losing competitive edge to nations like Vietnam and Bangladesh. Workforce formalization also needs policy reforms.

Short Term Benefits & Negatives:

The short-term upside is relief for stressed textiles firms who can improve capacity utilization, clear payables/debts and build working capital. Exporters can cater to festive holiday demand in key markets and generate better sales realizations. However, smaller firms may struggle with rising input costs like cotton, wool and synthetic fibers. High logistics and labor costs continue to hamper competitiveness. Buyer consolidation also increases pricing pressures for suppliers.

Companies will gain from this:

Raymond Ltd, Arvind Ltd, Welspun India Ltd and Himatsingka Seide Ltd in textile production. Aditya Birla Fashion & Retail, Trent Ltd in apparel retail. Transport Corp of India in logistics.

Companies which will lose from this:

Sectors like electronics and technical textiles may lose some labor availability. Real estate developers in competing exporting countries can potentially lose some business as orders shift back to India.

Additional Insights:

Sustained textile industry growth needs enabling policies for scale and competitiveness. Foreign investments in fabric production can bring technical expertise. Higher cotton crop MSPs can support farmers. Streamlined labor laws and export incentives also help. But excess protectionism could hurt productivity. Success lies in balancing growth prospects with social and environmental impact.

Conclusion:

The turnaround in India’s textile exports and production after a prolonged slump comes as a relief. But it requires closer monitoring whether this marks the beginning of a structural recovery riding on solid demand drivers or merely a short-term resurgence. Investors can identify well-managed firms to capitalize on the upside potential while hedging against inherent sectoral risks.

Citation:

Gera, Ishaan and Kirtika Suneja. “Good tidings for textiles industry as experts see pick-up in production, exports.” The Economic Times, 04 Dec. 2023,

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