Synopsis:- Textile shares in India saw a decline after Bangladesh secured a deal with the US that granted Bangladesh free access to the US for garments with American content. This raised concern over what the impact of a shift in the trade of cotton might have, due to the fact that Bangladesh’s 80 percent of export profit comes from apparel export and provides employment to 4 million people.
There was a steep fall in Indian textile stocks on Tuesday, February 10, as investors were reacting to reports of Bangladesh having entered into a special trade agreement with the US. According to the agreement, Bangladesh will not have to pay any taxes to the US while exporting its textiles, provided they use American cotton or synthetic fibres.
What’s the Deal About?
The interim leader of the Bangladesh government, Muhammad Yunus, declared that the US has agreed to provide zero-tariff access to Bangladesh clothing that uses US materials. This is a good thing for Bangladesh because clothing accounts for more than 80 percent of its export earnings and employs four million people.
Why Indian Companies Are Worried
India has been the main supplier of cotton and yarn to Bangladesh for years. Now, with this new arrangement, Bangladeshi manufacturers might start buying American raw materials instead of Indian ones to qualify for the tax-free benefits in the US market. This could reduce demand for Indian cotton and yarn exports. However, experts believe the impact may be more about market sentiment than actual business losses.
What Industry Experts Say
Pallab Banerjee from Pearl Global pointed out that Bangladesh was already more competitive than India due to lower costs and better infrastructure. “This deal will make them slightly more competitive, but it’s not a massive game-changer,” he said.
He also mentioned that Bangladesh still depends heavily on Indian cotton and yarn because its own spinning industry isn’t very competitive. The logistics of importing cotton from the US and storing it in Bangladesh would also be challenging.
Limited Short-Term Impact
Market analyst Mayuresh Joshi noted that Bangladesh has always been strong in most textile segments, while India leads in select areas. He expects a “sentimental profit booking” rather than real damage to company earnings.
Joshi believes integrated textile companies, those that handle everything from yarn to finished fabric, will handle this pressure better. These companies have better cost controls and can adjust their operations more efficiently.
The Road Ahead
The good news is that this US-Bangladesh deal only applies to specific orders where buyers specifically ask for American raw materials. The requirement that around 70% of inputs must be from the US will limit how many manufacturers can actually take advantage of this deal.
Indian textile companies are also exploring new markets in Europe and the UK through various trade agreements, which could help balance out any losses from Bangladesh shifting its sourcing.
Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on tradebrains.in are their own, and not that of the website or its management. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution while investing or trading in stocks. Trade Brains Technologies Private Limited or the author are not liable for any losses caused as a result of the decision based on this article. Please consult your investment advisor before investing.
