India-UK FTA boosts textile sector, shares surge by 5-12%

Mumbai: Shares of textile companies and garment makers surged Wednesday on expectations the bilateral trade deal with the UK will help expand the shelf presence of Indian brands in British retail outlets that currently source significantly more from low-cost producers such as Bangladesh.

The landmark Free Trade Agreement (FTA) eliminates existing tariffs on textile trade between the two countries. As per an Elara Capital report, textiles and apparel trade is at $1.42 billion, with India exporting nearly the entire quantum.

Shares of Welspun Living were the top gainer on BSE, up 12%, followed by Gokaldas Exports, Indo Count Industries, KPR Mill and Vardhman Textiles up 4.7% to 11.7% at close. The BSE 500 index was up 0.5% on Wednesday.


"The India-UK FTA removes 8-12% tariffs on Indian textiles, making exports to the UK cheaper and more competitive," said T Manish, research analyst at Samco Securities. "This gives Indian exporters a clear cost advantage over rivals such as Bangladesh and Vietnam, potentially boosting margins or enabling price cuts to gain market share."

Manish said the UK is India's third-largest textile export market, and the agreement offers meaningful room for growth of Indian textile companies.

Manish said he prefers Gokaldas Exports, Kitex Garments and KPR Mill in this sector, and sees 20% upside in these stocks.

Shares of textile companies have had a mixed performance this year, with Welspun Living down 17%, Vardhman Textiles down 2%, Gokaldas Exports and KPR Mill up 6% and 19%, respectively, in the past six months.

The BSE 500 index is down 3.3% in this period.

Analysts at Elara Capital said the FTA is a strong catalyst for Indian textile exporters, as the removal of import duties would improve price competitiveness and drive volume growth, in a note to clients.