Should you hold textile stocks amid rising cotton prices

The extreme weather conditions, coupled with lower crop yield, have triggered a sharp rise in cotton prices.

So far in the month of August, the prices of this commodity have surged over 11 per cent to Rs 50,600 per bale from Rs 45,297 per bale.

On the back of higher prices, spinning mills in highest cotton-producing states like Gujarat, Tamil Nadu, Andhra Pradesh and Maharashtra have either trimmed production or have started to use existing stockpiles.

Globally, too, the production of cotton has taken a hit. Industry experts estimate lower production for the US – then world’s largest producer of cotton.

They peg production to plummet to 28 per cent, the lowest seen since 2010.

While this may put margin pressure on textile companies in the near-term, the ones with steady inventories may benefit from this crisis in the long-run.

Deepak Jasani, Head of Research, HDFC Securities, cotton-yarn manufacturers, apparel makers to be hit, high cotton prices to squeeze companies margins, garment manufacturers to storm through the crisis.

That said, despite the huge cotton shortage across the country, analysts believe that India stands to storm through the crisis once prices ease.

Vinit Bolinjkar, Head of Research, Ventura Securities, textile companies to benefit in long-haul, expect cotton prices to cool off soon, bullish on companies with steady inventories, positive on KPR Mills, Vardhman Textiles in long-term.

Meanwhile, at the bourses, shares of textile stocks like KPR Mills, Welspun India and Vardhman Textiles have tumbled up to 45 per cent so far this year.

…In comparison, frontline indices Nifty50 and the BSE S&P Sensex climbed nearly 1 per cent each. That apart, this holiday-truncated week, investors will watch out India’s quarterly GDP data.

Globally, US employment data, crude oil inventory will also be tracked. As regards today, markets will react to global cues, rupee movement and crude oil prices.

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