Indian textile companies are set to experience improvements in the latter half of the fiscal year due to declining global inventory levels, despite subdued global demand. Major retailers like Walmart and GAP Inc. have confirmed their ongoing efforts to reduce excess stock.
Analysts at JM Financial Institutional Securities Ltd have stated that Indian home textile and apparel exporters anticipate muted demand in H1FY24 due to inventory liquidation. However, they expect a recovery in export demand from 2HFY24, as global retailers' inventory normalizes in CY24.
The textile sector has faced challenges including low demand, inflation, and global supply chain disruptions, resulting in lackluster sales in FY23.
Nevertheless, lower cotton prices and declining logistic costs offer a lifeline to the sector's operating margin. Analysts believe that companies with strong product portfolios, robust export clientele, integrated business models, and expanded capacity are poised to achieve substantial earnings growth of 20-41% over FY2023-25E. They have upgraded their outlook on the textile sector from neutral to positive, citing a favorable medium to long-term outlook.
Furthermore, the Indian textile sector is expected to benefit from the China+1 strategy, as China's declining market share prompts a shift in apparel exports to other Asian countries. Investor confidence is returning, as key stocks like KPR Mills Ltd, Gokaldas Exports Ltd, and Alok Industries Ltd have recorded significant gains of over 20% this year.
The industry's future will depend on the pace of demand recovery, underscoring the importance of the upcoming half-year period.
