Textile Sector...on a roll...!!!

In our blog dated 8^th September 2010, we had covered the future prospects of textile as a sector and recommended a contrarian buy in some of the leading stocks in this sector. Textile stocks had been under-performing the markets for quite sometime.  We anticipated a rally in the sector in near future. Recently we have been witnessing a significant movement in the stocks in this sector. The shares of companies like Welspun India, Raymond, Vardhman Textiles etc moved up.

The Indian Textile Industry, in the times to come would more than triple from the present size. The domestic textile market is growing at around 10% per annum. The proportion of exports in the total Indian textile industry is one third while the domestic market accounts for the balance two third. This shows that the Indian textile industry is not dependent on the overseas markets for its growth. Taking a look at the overseas market, China is a clear leader. But, of late, it is facing a situation where its domestic demand is increasing. China’s local textile demand is growing at 15-20% per annum, which does not leave much surplus for them to export. The global retailers are looking at de-risking their sourcing strategy by increasing their purchases from other markets like India.

Indian textile industry is well placed due to its good quality cotton. To cash on in this quality, the companies have started setting up large capacities keeping in mind the rapidly growing demand both on domestic and export front. Moving ahead, we expect a significant performance from the sector on the back of increasing demand on both domestic and international front. Accordingly, we reiterate our buy call on stocks like Alok Industries, Welspun India, Garden Silk Mills, Siyaram Silk Mills, Nahar Spinning, Raymond, Century Textile etc which are fundamentally quite strong and are available at attractive valuations.