While ICRA expects Indian apparel exporters to report a moderation in profitability in fiscal 2019-20, with a subdued turnover growth and pressures likely to sustain at least in the near term, barring a few large players, a CARE Ratings survey expects India’s gross domestic product to reduce by around 0.5 per cent on account of the coronavirus outbreak.
Majority of respondents in the survey, titled ‘Impact of the Corona Virus on the India Economy’, who believe that the Reserve Bank of India (RBI) will reduce the repo rate, expect a cut between 25 and 50 basis points either before or in April 2020.
Fiscal deficit may widen if the government announces fiscal measures to support the economy, the survey found. Also, 58 per cent of respondents expected India’s exports to further contract in the next fiscal, while 78 per cent predicted a contraction in imports as well.
More than half of the stakeholders foresee an upward pressure on retail inflation by June 2020. Also, 57 per cent expect the epidemic to provide a boost to the domestic industry by way of import substitution or opening up of new import or export markets. Pharmaceuticals, textiles and electronics are likely to be top beneficiaries from this potential business opportunity; an Indian newspaper report cited the survey as saying.
The industry is facing increased challenges like increased bargaining power of buyers amid intense competition, cost-side pressures emanating from disruptions in procurement of materials and consumables from China and write-backs of export incentives booked previously, all of which are expected to adversely impact profitability, ICRA said.
The Indian apparel exporters are passing through testing times, with several internal and external challenges. The external issues primarily stem from an unfavourable demand-supply scenario. Demand in the key markets has remained subdued, with impact heightened by the rapid spread of the COVID-19 across regions in the recent weeks, the rating agency said.
While demand from the EU has remained weak, recent trends in the US apparel imports have also been discouraging, corroborated by a volumetric decline of 12 per cent year on year (YoY) in apparel imports by the United States in the third quarter of this fiscal and an overall decline of 0.3 per cent YoY in the first nine months, it found.
This follows a 17 per cent and 5 per cent YoY decline in domestic retail sales of clothing and clothing accessories (in value terms) in the United States in the third quarter and the first nine months of this fiscal respectively. Besides affecting order flows, this could potentially result in renegotiation of realisations as well as an elongated receivables cycle for the exporters, ICRA added.