Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Textiles: Grim reality - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • May 23, 2001

    Textiles: Grim reality

    The Indian textiles industry seems to be recovering from the aftermath of the late 1990s. After prolonged slack in demand, yarn prices have moved up significantly. Besides, demand for other key segments like fabrics and denim is also moving up. Is this a sign of things to come?

    Cotton prices in India are basically a function of supply. This is dependent on rainfall and the relative prices of other substitutes like synthetic fibres. Since cotton is a seasonal crop (grown from October to April), production is highly dependent on monsoons. As quality of cotton has been deteriorating, imports have been on the rise in recent years. In fact, it is believed that imports of cotton might cross the previous years level of 2.2 m bales. Yarn prices, on the other hand, had moved up last year (average yarn prices had gone up by 6.6% in the first eleven months of FY01).

    India’s competitive advantage in the textile sector is cheap labour and comparatively lower cotton prices (cheaper by around 25%). But cheap labour has also been one of the biggest problems for this sector. The industry has been suffering from lack of labour reforms, which has pushed productivity to lower limits due to frequent strikes and lockouts (the typical example is National Textiles Corporation). Even if the government decides to privatise the companies, the bloated workforce is definitely a big hindrance. But in the Budget 2002, the government has mooted the amendment of the Industrial Disputes Act for increasing the ceiling on labour retrenchment from 100 to 1,000, which should augur well for the industry.

    Also, the finance ministry in the current year had announced a slew of measures to revive the sector. The withdrawal of excise duty concessions to the small-scale sector and new labour reforms are some of the initiatives towards the right direction. Meanwhile, the government has also increased the depreciation rate from 25% to 50% for the plant and machinery installed under the Technology Upgradation Fund (TUF). Since the domestic textile industry suffers from lack of modernization, the TUF aims at modernizing units across the sector. But the domestic fabric segment continues to suffer to high input costs (like power and interest charges). As a result, the organised segment has been continuously losing market share to the unorganised segment. Though fabric production was higher in the first half of the current year, growth waned towards the end of year, which is apparent from the graph. The total fabric production for April 2000 to February 2001 has risen just by 4% to 36,648 m square meters.

    With WTO (World Trade Organisation) agreement coming into place from April 2001, domestic companies and small-scale players will have to face competition from multinationals. Under the WTO agreement between US and India, India has committed to bind its textiles and tariff lines to allow global players to have greater access to the Indian market. In fact, the quantitative restrictions on 342 textiles were lifted with effect from April 1, 2001. Hence, modernization of existing units is critical to combat imports.



    Equitymaster requests your view! Post a comment on "Textiles: Grim reality". Click here!


    More Views on News

    Grasim: Starts New Fiscal on a Solid Note (Quarterly Results Update - Snapshot)

    Aug 11, 2016

    Grasim's revenues and profits report strong growth during the quarter ended June 2016.

    Grasim: Profits zoom on higher volumes & price recovery (Quarterly Results Update - Snapshot)

    May 9, 2016

    Grasim's revenues and profits report stellar growth during the quarter ended March 2016.

    Grasim: Higher volumes and realisations boost profits (Quarterly Results Update - Snapshot)

    Feb 4, 2016

    Grasim's revenues and profits report impressive growth during the quarter ended December 2015.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms