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Shares of textile companies were in focus on Monday as they rallied up to 19 per cent on the BSE in the intra-day trade amid heavy volumes on expectation of fall in cotton prices due to slump in demand and increase in cotton sowing.
Vardhman Textiles (VTL) surged 19 per cent to Rs 318.05 on the BSE on the back of over 10-fold jump in trading volumes. A combined 4 million equity shares have changed hands on the counter till the time of writing of this report, as compared to an average sub 40,000 shares that traded in the past two weeks on the NSE and BSE.
Himatsingka Seide, meanwhile, soared 11 per cent to Rs 121.60, followed by Nitin Spinners (8 per cent to Rs 215), Ambika Cotton Mills (8 per cent to Rs 1,740), Welspun India (7 per cent to Rs 75.45), Gokaldas Exports (6 per cent at Rs 341), Nahar Spinning Mills (5 per cent at Rs 317.85), and Trident (5 per cent at Rs 38). In comparison, the S&P BSE Sensex was up 1.2 per cent at 54,361 points at 02:00 PM.
The stock prices of these companies had declined by up to 50 per cent from their respective 52-week highs, due to rising raw material cost, mainly cotton. Inflation on the raw material, energy and supply chain fronts have had an adverse impact on the operating profitability of textile sector in FY22.
Elevated cotton prices have been the pain point for Indian textile exporters. Although the management of companies expect inflationary headwinds to continue in the near-term, outlook for the industry continues to be optimistic.
According to a Times of India report, after touching the lifetime high of Rs 110,000 per candy (356kg) in recent months, cotton price is likely to dip to Rs 60,000 per candy by December 2022 because of the slump in demand and the wait-and-watch strategy of the market players.
Cotton prices have come down to about Rs 80,000-Rs 85,000 and forward bookings for October-November are priced at Rs 66,000-68,000 per candy. The Spinners Association Gujarat (SAG) believes that by December, cotton prices will go below Rs 60,000, the newspaper reported.
The likelhood of an increased cotton production (at least 10 per cent higher sowing) in the ensuing year is likely to further reduce the prices of cotton. We believe that lower cotton prices would be beneficial for the entire textile value chain and should lead to improved utilisation and better profitability for all players in the cotton textile products, ICICI Securities said in a note.
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