Exporters are attracted by higher world prices; but domestic textile and garment manufacturers are worried they may be affected
The government has approved the export of 5.5 million bales (a bale is 170 kg each) of cotton his year. So far, 1.64 million bales have been registered with the Textile Commissioner of India. India is expected to produce 32.5 million bales of cotton this year and domestic consumption is expected to be at 22 million bales. For the first time, the registration of cotton bales has been done online. This will help ensure transparency in the market and eradicate any favourable stock takers.
Cotton prices in India have seen a tremendous rise in September, at Rs3,628 a quintal, from Rs 2,419 a quintal in September last year. That's an increase of 49.8% in a year. The price increase is in line with the hike in prices globally following floods in parts of China and Pakistan which has resulted in lower cotton production in these countries.
According to Motilal Oswal, "Since Q1FY11, cotton prices have increased by about 20% to over US$1/pound, primarily due to floods in Pakistan that damaged the cotton crop and the delay in harvesting of the new crop in India, China and Pakistan. As cotton prices continue rising, the export price of cotton yarn has gone up by 40-60 cents in the last one month."
Indian exporters are keen to export cotton for the premium they will get on the international markets. Motilal Oswal has pointed out in a recent report that Indian exporters are favourably placed. "Recent events in China, with regard to labour cost inflation and appreciation of the yuan are key positives for Indian exports. Increasingly, Chinese dominance of the global textile industry is declining. We believe that Indian textile and garment exporters are well placed to increase their market share," the report says.
But while cotton prices have been at an all-time high, cotton export has been deferred to 1 November 2010. At a time when the world market is looking to India to fill in the production shortfall, export has been delayed due to a difference in opinion in the corridors of power.
Textile and knitwear companies in the south have been pushing their representative bodies, like the Tirupur Exporters' Association (TEA), to ask Tamil Nadu chief minister M Karunanidhi to intervene to put off exports, so that they do not face any problem in getting their cotton requirements. They have demanded that exports not be allowed till 1 January 2011. This would ensure that they get their supply on time and without having to face a competitive export price.
In a letter to Dayanidhi Maran, union minister of textiles, TEA said garment units were apprehensive that higher cotton prices could lead them to shut down, affecting the livelihood of over 5lakh people employed at these units who are mainly women workers from the rural areas. The letter says that if the objective of allowing cotton export is to get better international prices for cotton farmers, they were already getting a good price and exports should not end up benefiting the multinationals.
There is also a feeling that if the deadline for exports is extended, farmers may hold on to their cotton stocks a little longer to earn a premium.
Kolkata: The government today expressed optimism that food inflation would ease from November with the arrival of new crop, reports PTI.
"It is difficult to predict, but I think food prices are expected to soften from November with new crop hitting the market from mid-October," secretary to the ministry of statistics and programme implementation TCA Anant said here today.
However, food price inflation, which was at 16.24% for the week ended 25th September, would not go below 7%-8% till February-March, Mr Anant cautioned.
He emphasised that immediate supply of produce was an important factor under short- term dynamics because of weak food storage facilities.
Ever since the Securities and Exchange Board of India (SEBI) banned the entry load for mutual fund schemes, fund companies have been suffering from a steady haemorrhage of cash from their equity schemes. The carnage continues
The mutual fund (MF) industry continues to bleed after the Securities and Exchange Board of India (SEBI) withdrew entry loads in August 2009.
As per data released by the Association of Mutual Funds in India (AMFI) on Wednesday, Rs7,281 crore was pulled out of equity schemes, including equity-linked tax schemes, in September 2010, taking the total redemption over the past 14 months to Rs21,731 crore.
This is all the more galling for the fund industry, because mutual funds normally benefit from inflow of funds when the market is rising. The Sensex has risen 31% from 15,666.64 in August 2009 to 20,543.08 as of 6 October 2010.
Moneylife has been constantly reporting on how the ban on entry load announced by the market regulator last year has made MF distributors stop selling funds.
The truth is that the ban on entry loads has dried up the distributors' revenues and they are now asking investors to consider Unit-linked Insurance Plans (ULIPs) and company fixed deposits (FDs) as the next best investment opportunity.
This is unfortunate because ULIPs are no better than equity funds unless they are held for a longer period while FDs are unsecured investments. But the commissions on ULIPs and FDs are extremely attractive, which is why distributors are pushing them.
Fund companies privately curse the changes SEBI has brought about in the last one year in reducing sales incentives while many distributors have gone out of the fund-selling business altogether, suddenly finding the business unviable.
The scenario has been continuously dismal for the MF industry.
In June, investors pulled out Rs1,446 crore from equity schemes. In July alone, Rs3,400 crore flowed out of the industry. Equity schemes witnessed Rs2,890 crore net outflow in August 2010, continuing the trend from the past several months.
The continuous outflow of cash can only be attributed to SEBI's order of banning entry loads and forcing fund distributors to make money by 'advising' investors.
Some say that as the markets reached new highs, equity mutual fund investors have been quick to cash in. A majority of the investors who had put their money at the peak of the markets have started pulling out money from equity schemes, say some sources in the fund industry. But this does not explain why there has been continuous outflow of funds over the past 14 months. Coincidentally, SEBI had banned entry loads on new fund sales and then followed it up with a host of measures to 'tone up' the fund industry. Obviously, none of these 'measures' are working.
But now, a clearer picture is emerging. Fund companies are staring at a bleak future. Will a sharp correction in the Sensex, which has been on a roll thanks to the influx of overseas hot money over the past few months, sound the death knell for the industry?