Special Feature on Textile Sector
The future for the Indian textiles industry looks promising led by strong domestic consumption as well as export demand. With consumerism and disposable income on the rise, the retail sector has experienced rapid growth in the past decade
India’s textile sector is among the oldest industries in the Indian economy that can be traced back to several centuries. The industry is extremely varied with handspun and hand-woven textile sectors at one end of the spectrum and the capital-intensive sophisticated mill sector on the other end. The decentralised power looms and hosiery and knitting sector forms the largest component in the textile sector. The close linkage of the textile industry to agriculture for raw materials such as cotton and the ancient culture and traditions of the country in terms of textiles makes it stand out in comparison to other industries. India’s textile industry has the capacity to produce a wide variety of products suitable for different market segments, both within India and across the world.
The domestic textile and apparel industry contributes 5 per cent to the GDP of India, 7 per cent of industry output in value terms and 12 per cent of the country’s export earnings. India is the sixth-largest exporter of textiles and apparel in the world. Also, it is one of the largest producers of cotton and jute in the world and the second-largest producer of silk. Up to 95 per cent of the world’s hand-woven fabric comes from India. The Indian technical textile segment is estimated at USD 16 billion, which is approximately 6 per cent of the global market.
The textile and apparel industry in India is the second-largest employer in the country providing direct employment to 45 million people and 100 million people in allied industries. India has also become the second-largest manufacturer of PPE in the world. More than 600 companies in India are certified to produce PPEs currently, whose global market worth is expected to be over USD 92.5 billion by 2025, up from USD 52.7 billion in 2019.
Market Size
The size of the Indian retail market is estimated at approximately USD 845 billion with organised retail accounting for USD 101 billion, which is 12 per cent of the overall retail market as of FY20. The overall retail market is expected to grow at a CAGR of 6 per cent to reach a size of USD 1.1 trillion by FY25. The prominent growth drivers can be increased consumption with the growing working-age population, rapid urbanisation, higher per capita disposable incomes, increasing number of households and rural growth. The organised apparel and accessories segment is expected to grow at a 10 per cent CAGR during FY20-25 with increased penetration of around 40 per cent. The total organised retail market size is expected to grow at 15 per cent CAGR to USD 201 billion in FY25 from USD 101 billion in FY20.
The Indian fashion retail industry has shown consistent growth despite challenges and changes in recent years, indicating evolving fashion and lifestyle preferences. The apparel market size is predicted to reach USD 107 billion in FY25 from USD 67 billion in FY20. Traditional retail players are witnessing a decline in market share as consumers are shifting their preferences from unorganised to organised retail. The organised retail consisting of brick and mortar and online market is expected to grow from 33 per cent to 41 per cent in the coming five years. Up to 100 per cent FDI is allowed under the automatic route in the Indian textile sector. The industry (including dyed and printed) attracted foreign direct investment (FDI) worth USD 3.46 billion.
Impact of the Pandemic
The hit of the pandemic halted the growth trend of the retail sector, leading to a one to two years delay in achieving estimates. However, the e-commerce industry saw robust growth due to the inclusion of many first-time buyers and is predicted to touch approximately USD 100 billion by FY24, outperforming an earlier estimate of USD 80 billion by FY25. Some of the growth drivers like the increasing share of affluent and elite households, nuclear family structures and urbanisation came under pressure, leading to a squeeze in the retail sector in 2020 after several years of exhibiting double-digit growth. Going forward, a faster vaccination rate should help control the spread of the virus, leading to the revival of the sector.
Major transformations seen in the buying pattern of consumers during the pandemic include:
1. Consumers favoured home and sustainable clothing and abstained from outdoor and fashion clothing given limited or no social occasions.
2. Accelerated adoption of online shopping.
3. With reduced incomes during the pandemic, product pricing was an important determinant of purchase.
Performance of Textile Industry in Equity Markets
The share of domestic private consumption in India’s GDP zoomed from 55 per cent in FY15 to 60 per cent in FY20. Amid near-term demand headwinds stemming from the pandemic, the country’s mid-to-long-term consumption growth story remains intact driven by personal income growth, steady and dispersed urbanisation, favourable demographics, democratisation of the internet and evolving consumer attitudes. The market has already started giving positive signals. China Plus One sees India’s textile sector bouncing back on global recovery. Industry players also express that following the China Plus One strategy, there is at least a 20 per cent shift of exports from that country to India.
Due to a series of changes taking place in China, investors are inclined toward buying textile stocks and electronic assemblers like Dixon Technologies and Amber Enterprises while some are also showing interest in chemical stocks. The entire aura of the textile space is around names like specialty chemicals and textiles and maybe some other small categories which are going to benefit because of higher pricing due to the disruptions in China and curtailment of exports by China. The Indian companies may gain some volume advantage and within this inclination investors are likely to favour textiles even though the industry is not a big segment.
The returns from textile stocks have rallied up to 2,970 per cent in the year 2021, so far. The stock of Adinath Textiles has skyrocketed from Rs.1.71 on January 1, 2021 and touched Rs.96.90 per share on September 24, 2021 which is currently trading at Rs. 52.50 per share. This multibagger penny stock has attracted investors’ eyes in 2021 followed by One Global Service Provider and Sportking India. Multiple textile stocks have hit all-time high in recent days as investors become more optimistic on the sector.
Stocks of textile companies like Page Industries, KPR Mills, Ambika Cotton, Lux Industries, Welspun India and Indo Count Industries have advanced between 81 per cent and 260 per cent in the past one year. In contrast, the broad indices have given around 50 per cent returns during the same period. The stock of Lakshmi Machine Works, a major manufacturer of textile machinery, has doubled in one year. Going according to the largest market capitalisation, the following table summarises the six months to one year performance of the top 10 popular textile stocks:
The textile sector had been an underperformer for the last three years as it faced the brunt of cheap imports, slow consumption, over-capacity and several other issues. China, Bangladesh and Vietnam were infusing the global markets with cheap products, making it hard for Indian textile companies. Several Indian textile manufacturers have experienced the benefits of the China Plus One strategy as the industry is witnessing export boost at a rapid pace. Indian manufacturers have tapped the opportunity regarding fashion and retail brands as they look to replace Chinese manufacturers. Indian textile imports have risen 50 per cent on a YoY basis for the month of August on the back of strong systems in place for traceability and addressing environmental, social and governance (ESG) concerns.
So far, Indian companies have concentrated on the cotton and cotton apparel sector. The manmade fibres market is large with the US alone importing Rs. 3 lakh crore worth of the material annually. Currently, India has a minute share of the market. One more driver of growth could be the production linked incentive (PLI) programme that was announced to incentivise production of manmade fibres (MMF). The companies that participate would receive subsidies cumulatively worth Rs. 10,683 crore. Around 35 Indian companies including Welspun India, Reliance Industries, Vardhaman Textiles, Arvind, Trident, and several others have showed interest in participating in the scheme.
Future Outlook
India is working on major initiatives to boost its technical textile industry. Owing to the pandemic, the demand for technical textiles in the form of PPE suits and equipment is on high priority. Also, the government is supporting the sector through funding and machinery sponsorship. Recently, the Union Cabinet approved PM MITRA (Mega Integrated Textile Region and Apparel) parks scheme for the textile sector to set up seven integrated textile parks in the country, as announced in Union Budget for 2021-22. The scheme will spread a total outlay of Rs. 4,445 crore over a period of five years. Under the scheme, MITRA parks will be developed by a special purpose vehicle, owned by state government and the centre in public-private partnership mode.
The parks will be set up at greenfield and brownfield sites in willing states. The textile industry is highly sensitive to the cotton market as over 70 per cent of its output is based on cotton whereas in the global markets the articles made of manmade fibres constitute higher share. India is the second-largest exporter of cotton in the world and is flushed with cotton production. In October 2021, the cotton prices have touched their 10-year high. The rise in cotton prices has cheered pure cotton mills and integrated textile mills as well as garment manufacturers. Given the macro-economic trends and international events shaping the Indian and global economy, the Indian textile industry is looking at vast opportunities in this sector.
Top players in the sector are acquiring sustainability in their products by manufacturing textiles that use natural recyclable materials. Besides, high economic growth is seen resulting in higher disposable income. This has led to a rise in demand for products creating a huge domestic market. The future for the Indian textiles industry looks promising led by strong domestic consumption as well as export demand. With consumerism and disposable income on the rise, the retail sector has experienced rapid growth in the past decade. Higher penetration of organised retail would boost the demand for home textiles whereas growth in building and construction is expected to drive demand for non-clothing textiles.