Textile stocks drop up to 6%, extend losses after US-Bangladesh trade deal: Here's what experts say

Textile stocks drop up to 6%, extend losses after US-Bangladesh trade deal: Here’s what experts say

• Textile stocks fell sharply after US-Bangladesh trade deal on reciprocal tariffs
• Bangladesh gains zero-tariff access for select textile exports to US
• Indian exporters face increased competition but retain a slight tariff advantage

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The shares of textile companies extended sharp losses for the second consecutive session on February 11 after US and Bangladesh announced the conclusion of their agreement on reciprocal trade.

Pearl Global Industries shares fell around 6 percent, while Gokaldas Exports dropped nearly 4 percent. K.P.R. Mill and Arvind shares fell around 3 percent each.

Why are textile stocks falling today?

As part of their agreement, US committed to build a mechanism that will allow for certain textile and apparel goods from Bangladesh to receive a zero reciprocal tariff rate. "This mechanism will provide that a to-be-specified volume of apparel and textile imports from Bangladesh can enter the United States at this reduced tariff rate, but this volume shall be determined in relation to the quantity of exports of textiles, e.g. U.S. produced cotton and man-made fiber textile inputs, from the United States," a joint statement read.

According to the recently announced trade framework between US and India, the former will effectively reduce the reciprocal tariff on Indian textile exports to 18 percent from the current 50 percent. While Indian textile exporters will enjoy a lower tariff rate than current levels, they will face strong competition as Bangladeshi peers will enjoy zero reciprocal tariffs on their textile exports to the US.

The overall US tariff rate on Bangladeshi exports meanwhile has been reduced to 19 percent, slightly higher than India's 18 percent rate.

“The Agreement will provide U.S. and Bangladeshi exporters unprecedented access to each other’s respective markets.  The Agreement will build upon our longstanding economic relationship,” the two countries said in their joint statement.

What lies ahead?

"Investors appear to be reacting to some of the tariff exemptions given to Bangladesh. However, details remain scant and we may not see a material impact for India's large textile players," says Prerna Jhunjhunwala, VP - Lead - Textiles and Retail Sector at Elara Capital.

Jashan Arora, Director at Master Trust Group, explained that the tariff rates on Bangladesh have been reduced to 19 percent from 20 percent and compared with India’s 18 percent. This indicates that India continues to retain a marginal tariff advantage over neighbouring countries.

He however added that the US-Bangladesh trade agreement’s provision granting zero-tariff access on select textile categories could be a key beneficiary for Bangladesh and could alter the competitive dynamics.

“The market’s sharp reaction in textile stocks reflects concern around near-term revenue visibility and pricing pressure in the sector. However, India continues to hold structural advantages across scale, supply chain integration and established global buyer relationships,” the analyst explained.

Is it time of sell textile stocks?

According to Arora, a sudden exit from the sector is not recommended and instead investors should reassess their portfolio exposure by identifying companies with structural strengths such niche product positioning or superior cost efficiencies.

“Businesses with diversified export geographies and relatively stronger margin profiles are likely to better withstand the competitive disruptions. In the current uncertain environment for businesses, identifying differentiated pockets will be more effective than broad-based exposure to the entire sector for investors,” he said.

The US-Bangladesh news is a “sectoral inflection point”, not an “apocalypse”, Arora explained. “It will accelerate the divide between low-cost, commoditized exporters and agile, value-added, and diversified textile players. The investor's task is to identify which side of this divide their holdings—or potential investments—stand on. For the strong, this correction is an opportunity. For the weak, not so much. Discernment, not reaction, will be the key to navigating this spin cycle,” he further said.

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