Seasoned multibagger hunters all turn to one sector to find next gem

NEW DELHI: The best minds on Dalal Street are always trying to find the next best stock idea. The ability to do so earlier than the others makes them successful.

Going by buy-sale trends of the June quarter, it looks like many of them have been hunting for gems in the textile sector. The sector has suffered quite a bit due to the pandemic, with sales down in the dumps, but the recovery has been impressive.

Rising demand for textile products in domestic as well as foreign markets has already attracted a large number of investors, taking some of the stocks up as much as 750 per cent this calendar so far.

The June quarter shareholding data available so far showed some of the renowned investors have bought stakes in the textile companies, a sign that the sector is being seen as one of top performers in the coming few months.

During the quarter, Sunil Singhania bought a stake in Rupa & Company,

DCM Shriram Industries

and Siyaram Silk Mills; Anil Kumar Goel added shares of Vardhman Holdings,

Nahar Spinning Mills


Amarjothi Spinning Mills

and DCM Nouvelle; and Dolly Khanna bought Nitin Spinners, RSWM and

Deepak Spinners


Not just big names, even retail investors and institutional investors piled on select stocks from the sector. In 2021 till now, 38 stocks from this space have delivered multibagger returns; 24 have more than doubled since April 1, reflecting solid investor interest. This is reminiscent of the rally in metal stocks that multiplied between October 2020 and May 2021.

This is at the time when the situation is yet to turn favourable for the business. JM Financial expects home textile players to report sequentially flat profit growth in Q1. However, things may change drastically from here on.

Analyst commentaries have turned bullish on the textile sector. In the financial year 2021, the home textile segment saw a 7-8 per cent drop in revenues. However, that is likely to grow 20-22 per cent this financial year, said Crisil.

The rating agency believes cotton yarn revenues will also recover to the pre-Covid levels this financial year, with operating profit rising 200-250 bps thanks to sustained demand at a high price spread. It has a similar projection for ready-made garments.

A $220 billion opportunity
In value terms, India’s domestic textile and apparel market was worth $106 billion in 2019-20 and is expected to grow at a CAGR of 12 per cent to reach $220 billion by 2025-26. With the adoption of modern technologies and better capacity building, India in the recent years has emerged as a cost-competitive base for manufacturing.

“Growing preference for India as a sourcing partner and the China+One strategy has also increased demand for Indian textiles in the global market. In the last six months (Jan – Jun 2021), India’s textile export to the US has surged by 46.4 per cent to $4.5 billion,” said Vinit Bolinjkar, Head of Research of Ventura Securities.

India has strengthened its position as an alternative to China, thanks to a favorable Ease of Doing Business ranking, better compliance and political stability. Labor cost in India is highly competitive in the region and significantly lower than those in China, noted analysts.

India’s market share to triple
Thanks to the political tensions between the US and China along with some favourable agreements with Europe, India’s textile and apparel exports are expected to touch $300 billion by 2024-25, resulting in a tripling of the country’s market share globally from 5 per cent to 15 per cent, said a projection.

“Our channel checks suggest a healthy order book for exporters for next six months, given the sharp recovery in the US and EU markets. The spread between yarn and cotton prices is past the previous highs and should enable yarn producers to report strong earnings for H1FY22. Integrated players – Trident and Welspun India – continue to be our preferred picks in the home textile space,” said Ashutosh Somani of JM Financials.

Supportive government policy is also likely to come to fruition this financial year. “We are positive on the Indian textile market due to a rise in demand and support from the government through innovative schemes such as mega textile parks and the creation of a world-class infrastructure, which is expected to provide the necessary push to this sector and attract large investments,” said Bolinjkar. He is bullish on

Vardhman Textiles

, Trident, Nahar Spinning and Welspun.