US-Bangladesh Trade Deal Tears Textile Stocks, KPR Mill, Pearl Global, Gokaldas Exports Shares Plunge 8%

Stocks of Indian textile manufacturers and exporting companies fell on February 10 after the US and Bangladesh inked a trade deal, which slashed the reciprocal tariffs on India’s neighbour down to 19 per cent, compared to 18 per cent tariffs reduced for India. Shares of these companies had surged after India and the US announced their trade pact.

Shares of Gokaldas Exports dropped nearly 8 per cent to end at Rs. 774 per share. Meanwhile, shares of KPR Mill fell to a low of Rs. 936.05 per share, recovering slightly to end at Rs. 950.5 per share or 2.9 per cent down on the NSE. Shares of Pearl Global Industries ended 10.6 per cent lower at Rs. 1,606.6 on the NSE.

Why did textile stocks fall?

The US and Bangladesh entered into a trade deal, and as part of it, the US has committed to building a framework to give zero reciprocal tariffs to certain apparel and textile imports from Bangladesh.

“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., the US produced cotton and man-made fiber textile inputs, from the United States,” a joint statement by the two countries said.

As per the recently concluded trade deal between India and the US, the reciprocal tariffs on Indian goods were reduced to 18 per cent from 50 per cent. While Indian textile exporters will enjoy a lower tariff from most other Asian peers, they will still face stiff competition as Bangladesh will now enjoy zero reciprocal tariffs on their textile exports.

“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 joint statement read.

While overall Indian exports are better placed, having a marginally lower tariff at 18 per cent compared to 19 per cent for Bangladesh, market analysts said the textile segment could provide an edge to already cheaper Bangladeshi exports.

“…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…A sudden exit from the sector is not recommended, and instead, investors should reassess their portfolio exposure by identifying companies with structural strengths, such as niche product positioning or superior cost efficiencies,” Jashan Arora, Director at Master Trust Group, said.

Market experts said that in the current environment, investors should identify differentiated pockets which will be more effective instead of going for broad-based exposure in the entire sector.

“New investors should avoid a broad-based 'dip buying' approach and instead focus on selective 'policy-agnostic' winners. The current correction is creating value in companies that have manufacturing bases in both India and Bangladesh, as they can shift production to wherever the tariff regime is most favourable. Caution is warranted for the next two quarters as the "zero-duty" volume limits for Bangladesh are finalised. Look for companies moving into synthetic/man-made fibres (MMF) and technical textiles, where the US-Bangladesh deal has less immediate impact compared to the commodity-heavy cotton segment,” Santosh Meena, Head of Research at Swastika Investmart, said.