Textile stocks under margin pressure

Margin pressure is taking a toll on the share prices of leading textile companies. Last week, the share price of Alok Industries, S Kumars Nationwide, Arvind Ltd, Bombay Dyeing, Raymond and Vardhaman Textiles, among others, fell between five per cent and 24 per cent even while the BSE’s benchmark index, the Sensex, was down just two per cent.

According to market analysts, several brokers were seen offloading these stocks, as investors, who had purchased them through funding deals, could not bring in more margin. Margin funding is the leverage provided by brokers to clients on a 20-30 per cent margin to dabble in stocks. Financiers turned jittery, as data this month showed garment exports to the US and Europe were slipping and even China’s textile production witnessed a considerable slowdown.

India’s garment exports fell by 10.5 per cent year-on-year to $ 1.1 billion in June due to weak demand in the US and European markets. According to data provided by the Apparel Export Promotion Council (AEPC), exports stood at $1.2 billion in the same period last financial year. According to AEPC Acting Secretary General Vijay Mathur, demand was sluggish in the US and European markets, as buyers were placing fewer orders and not keeping inventories. The US and Europe together account for about 65 per cent of the country’s total garment exports, which constitutes 50 per cent of the overall textile exports.

During April-June this year, apparel exports declined 12 per cent year-on-year to $3.2 billion.

According to data released by China last Thursday, the growth rate of textile production was down 20.3 percentage points year-on-year.

“Not many brokers will now do margin funding for textile stocks for at least a couple of months,” said a dealer with a south Mumbai-based broking firm.

The share price of Alok Industries fell the most by 23.47 per cent during the last week from Rs 15.55 to Rs 11.90. Exports for the company constituted around 35 per cent of the overall textile business, said a company official. The S Kumar stock fell over 11 per cent and was the second largest loser. According to a company official 35 per cent of their income came from overseas business.

Last financial year, overall textile exports was around $34 billion, and this fiscal year the target for textile exports is $40.5 billion.

“This year, the Indian textile industry should reach the amount close to how much we exported last year. But with the current economic scenario I don't think $40.5 billion can be achieved,” said D K Nair, Secretary General of the Confederation of Indian Textile Industry. Demand concerns even exist in the domestic market as industry players say that consumers sentiment is weak which is also a major concern for the textile industry.