A potential end to the US’s trade war with India has been making headlines recently. With negotiations resuming after a brief halt, the buzz is that the two countries could reach an agreement quickly.
Dalal Street is keen to know how such a deal would impact both short-term and long-term investments. While the details will be known only once the deal is signed, we can say with certainty that not all sectors will be affected in the same way or to the same degree, and some sectors are likely to benefit – a lot.
One such sector is textiles. The market has been bullish on these stocks, which were crushed by US tariff announcements, in anticipation of a positive outcome to the trade talks.
In this article, we discuss the outlook for the textile sector.
Potential impact of tariffs
When US President Donald Trump announced a 25% tariff on Indian goods, textile exporters’ stocks took a big hit. Things only got worse when he raised the tariff to 50%.
About 28% of India’s textile exports go to the US. The major articles of export are home textiles, garments and shoes. Companies in this sector generally operate on low margins, so the 25% tariff was a significant blow and a 50% tariff is essentially a death knell.
Many large US retailers such as The Gap, Walmart and Costco source their goods from India. These firms would have had to renegotiate their contracts because of the tariffs, resulting in cancelled orders or much lower prices for Indian firms.
But now, there’s hope.
Hopes for a positive outcome to the trade talks
Union minister Piyush Goyal has said the first tranche of a trade deal between India and the US will be finalised by November.
Progress on these talks has brought cheer to textile stocks such as Welspun Living, Pearl Global, Vardhaman Textiles and Trident. They were among the top gainers on Dalal Street in the week gone by.
Investors in these stocks are hopeful that the high tariffs on Indian exports will be removed once the trade deal is signed.
What’s the outlook for textile stocks?
Much will depend on the details of the trade deal, but there is no doubt that Dalal Street is upbeat, going by the rally in textile stocks.
Setting aside tariffs, the sector has a positive growth trajectory. Cumulative exports for April-July stood at $12.18 billion, a 3.87% increase from a year earlier. In July, textile and apparel exports touched $3.1 billion, marking 5.37% year-on-year growth.
Despite global volatility and steep tariffs, Indian textile stocks have displayed resilience, though the full impact will only be known once the trade deal is signed.
Conclusion
Supported by policy measures and global trade optimism, Indian textile stocks are showing strength. But investors are still cautious, given the uncertainty around the trade talks.
That apart, export-oriented textile companies are expected to benefit from increasing global demand, government incentives, andtrade agreements like the the one with the UK.
Overall, the outlook for India’s export-oriented textile companies remains optimistic – assuming a positive outcome to the trade talks – owing to strong government backing, expanding export markets, and structural improvements to the industry.
But remember, you should always evaluate a company’s fundamentals, corporate governance, and stock valuation yourself before making an investment decision.
Happy investing!
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com