Bangladesh crisis: Why India’s textile industry can grow during Muhammed Yunus’ interim government

Indian yarn exports to Bangladesh could grow by 10% to 12% in the coming months, with Nobel laureate Muhammed Yunus forming an interim government on Thursday, say analysts.

Bangladesh's textile industry is a significant sector of its economy, accounting for 80% of its exports and 15% of its GDP. The country primarily exports textiles to the European Union, the United States, Canada, Australia, and Japan. 

India has been a significant export partner, accounting for 20%-25% of the yarn that Bangladesh imports for manufacturing garments.

“We are currently in August. So maybe from September to November, around two to three months, our exports could rise maybe by lower double digits, around 10%-12%,” Deepak Jasani, Head of Retail Research, HDFC Securities, told LiveMint.

Bangladesh's situation benefits India's garment industry by making it the main alternative for countries importing from Bangladesh. However, the fate of India's yarn industry now depends on which party wins the elections in Bangladesh following the fall of Sheikh Hasina's government. 

Hint of caution

“There is nothing to be too excited about. The only thing is that companies will get the advantage of operating leverage, and their margins will expand. But this would be temporary,” said Deepak Jasani, while mentioning that no major reforms would be taken during the interim government's tenure. 

Jasani added that there continues to be a reason for worry, as uncertainties remain on how much exports would take place.

Against this backdrop, textile stocks, including Vardhman Textiles, Nitin Spinners, and Precot, experienced a decline ranging from 6.25% to 0.13% in intraday trading today. 

The fate of these companies depends on whether India can divert its exports to some other countries, as Bangladesh has been a reliable trading neighbour for India under the Awami League, said the analyst.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.