The Hindu Business Line : Falling rupee lifts textile companies

Mumbai, May 15 As the rupee continues to depreciate against the dollar, textile stocks seem to have shed the burden of the appreciating rupee and gained favour among investors. Arvind Mills has gone up by 20.19 per cent from a month ago, Alok Industries (13.13 per cent), Welspun India (16.17 per cent) and Gokaldas Exports has gained 11.03 per cent.

“The rupee has come down by almost Rs 3 per dollar in the past one month and this will definitely give a boost to the exporters and will also lead to better order book positions. This of course, given that the rupee prevails at this level and does not appreciate from here,” said Mr P. Nataraj, Managing Director, KPR Mill Ltd.

Rupee movement

The rupee has depreciated more than 6 per cent in the past one month. According to the RBI data, rupee was at 42.40 against the dollar. “These stocks are quite sensitive to the rupee movement. The weakening of the rupee quickly pulls the stocks up as the sentiment turns positive. Even a small strengthening of the rupee affects the stocks,” said an analyst with a Mumbai-based broking house.

“The recent depreciation might not have much impact on the bottomline of the companies for the next one or two quarters as companies normally hedge themselves against currency movements. But if the rupee continues to depreciate or sustains itself at this level, then it is a very positive thing for the companies,” said Mr Ankit Babel, Analyst at Dolat Capital.

“The exporters who have frozen their contracts at a specific rate, say, a month ago, will not be able to benefit from the rupee depreciation right away, as they will have to trade at the price fixed earlier,” said Mr Nataraj.

The textile sector was reeling under the rising rupee and also higher cotton prices, said analysts.

“There were shrinkages in the margins of these companies due to higher cotton and yarn prices, as they were not able to pass on this burden to the consumers,” said Mr Nirav Shah, Analyst, PINC Research.

Domestic market

“The sector growth had slowed down to 7 per cent in the FY 2007 from 25 per cent in FY 2006,” said a Motilal Oswal report. “During the first quarter of FY 2008, Indian textile exports were down by 3.3 per cent compared with the previous year.”

“Though the domestic market gives better margins, it cannot match up to the volumes which international trade seems to offer,” said an analyst.

Analysts feel that still it is a wait-and-watch situation for textile companies as far as the Indian rupee goes.

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