There was hardly anything that was going right for this sector ever since global economy took a U-turn. Being heavily export dependant sales nearly nosedived. Margins became a fraction of what they were pre-crisis. The volatility in foreign exchange only added to their woes. Even more to those that had forex denominated borrowings. Being heavily leveraged a steep rise in interest rates was nearly the last nail in the coffin. Companies that went overtly ambitious by entering into foreign JVs only repented later. But now it seems that China's decision to revalue the Yuan will be a boon in disguise.
Consider this. China is the largest exporter of textiles and allied products in the world, while India ranks seventh. Export of apparels totaled 28 bn Yuan in 2009. In fact China's stance of not letting the yuan appreciate assisted growth of its exports. High productivity and supportive labour laws also went to a great extent to make China one of the lowest cost producer. But now things are set to change.
Labour unrest in China has already grabbed headlines. With the Yuan revlauation raw material (cotton) cost is also expected to move up. This drives home the point that the oriental economy will no longer remain as cost competitive as before.
For Indian textile companies, China losing competitiveness has come in as a boon in disguise. The former are ideally positioned to capture all the markets that China is looking to exit. Also they are unlikely to face as much pricing pressure as earlier.
Infact the situation currently is similar to what it was before the abolioshment of quota system. At that time, China took over massive orders as it had been building capacities three years in advance. Indian capacities have only been built since then. However, Indian capacities are currently not high enough to compensate the surge in orders. Nonetheless the scope of growth is immense.
Whether or not the global economy benefits with the re-pricing of Chinese goods, India will. It only remains to be seen to what extent China acts on its promises.