The Hindu Business Line : Rupee impact: Mixed signals for textiles in short term

Kolkata, Aug. 26 A sharp depreciation of rupee against greenback and the appreciation of the local currency against euro and strong rise in cotton prices in the recent weeks appear to have a mixed impact on the textiles sector in the short-term. However, some industry insiders feel that in the medium term, if the current trends continue, the local textiles players would see margin going up beating the cost increases.

According to Mr Jayesh Shah, Director of Arvind Ltd, “In the short term, there may not be much of a difference because of the rupee depreciation, but in the medium term, we perceive to gain. We foresee margins going up in the fourth quarter.” In terms of euro, he said, Arvind was adequately covered.

Currency movements

Arvind’s exports contribute 50 per cent of its total revenues and of the exports, 45 per cent is US centric. He said: the recent rise in cotton prices would eat up much of the gains we could have made in the short term from this reverse currency movements. But, from October, when new season for cotton would start, things should change.”

Mr Rajendra Hinduja, MD of Gokaldas Exports, also echoed the same view. “Actual advantage may accrue from October-November for the local textiles players, when the currency forward covers taken in May-June would expire.”He said the cotton prices have gone up by around 20 per cent in the past five weeks and fabric prices have spurted by about 15 per cent. In case of Gokaldas, exports to US contribute 60 per cent, Eurozone about 30 per cent and the remaining is exported to other currency areas.

Mr Hinduja said the euro’s relative weakness against rupee presents a paradoxical situation for the Indian textiles companies. Mr G. Venkatesh, President of Eastern Silk, said, unlike cotton, the silk prices have of late remained stable. He said Eastern Silk, has of late, kept its exports earnings un-hedged, considering the wild movements in currencies. According to Mr Gul Tekchandani, an equity strategist, the companies that have not covered their positions in the forex market are relatively better off than those that have done so in the short term.

Unwanted difficulty

“It’s a veritable landmine. Even if one takes a position, it should be to protect one’s cost and a cover more than the forex revenues and import outgo, could bring in unwanted difficulty,” he added and said: “We have opted for losing an opportunity for making gains; but, we have felt that the conservatism pays in a volatile forex market.”

Textiles stock prices reflecting the perception did not spurt much. Himatsingka Seide moved up 2.7 per cent. Alok Industries finished up 1.65 per cent. Eastern Silk moved up by one per cent at close.

Arvind closed up 0.71 per cent. Gokaldas Export finished down 1.76 per cent. Nahar Spinning was marginally up 0.6 per cent, while Suryajyoti Spinning lost over 3 per cent. GHCL finished flat.

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