Rising cotton prices may browbeat textile cos expectations

06 Jan '06

3 min read

The great Indian textile story might have made everyone talking about it as the most happening sector. But the performance of textile stocks on the bourses is nothing to cheer about.

At a time when the Sensex and Nifty are scaling new peaks on a regular basis, stocks of leading textile companies have set up a rather boring performance.

While Arvind Mills, Century Textiles, GTN Textiles and Suryalakshmi Cotton Mills scrips have fallen on the NSE in the past three months, Vardhman Spinning is trading at almost its early October levels.

Share prices of textile companies based in the region showed a mixed trend with a few big names such as Lakshmi Mills and Precot Mills managing to notch up higher prices.

However, volumes traded in these scrips have been quite low. A few other mid-tier textile stocks from the region are in fact quoting at lower levels.

The fall comes at a time when prices of cotton, the main raw material for textile companies, have been on the rise. Spot prices of MCU-5 in upcountry markets are now ruling at Rs 23,500 per candy (355.6 kg) compared to Rs 18,200 in September.

Extra long staple (ELS) variety DCH-32 used for producing super fine quality yarn is quoting at Rs 46,000 against Rs 31,700 for September. Prices of Shankar and other cotton varieties too have been on the rise.

“Increase in input costs is the main reason for the decline. Though the real impact on margins will be known only after Q3 results are out, the market has reacted immediately by factoring in the likely outcome,” said Sreesankar R, head, research, IL&FS Investment.

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