After food & shelter, apparel prices rising too: Citi research

Prices of 'kapada' (clothing) are fast catching up with the trend of rising prices of 'roti' (food) and 'makaan' (shelter), owing to a spurt in cotton rates, according to a study.

"Although prices of raw cotton continue to remain firm (up 13 per cent year-on-year in August), they have come off from 17-20 per cent (high)... Going forward, however, we could see a knock-on impact of higher cotton prices on manufactured products, such as textiles," the study by Citi Investment Research and Analysis said.

Already, leading Indian retailers such as Reliance Industries and Arvind Mills have raised apparel prices and with the onset of the festive season, this could only go north, the report said.
    
"Faced with a squeeze on margins due to higher production costs, most retailers such as Arvind Mills, Aarvee Denims, Reliance Industries and Gokuldas Exports have raised apparel prices by 10-15 per cent. With the festive season approaching, we could see a further rise in prices," Citi said on the likely implications of higher cotton prices on India.
    
However, the squeeze in margin for the Indian retailers is not because of lower cotton output in India, but because of higher production costs for retailers. In fact, India is estimated to produce 33.5 million bales against the annual demand of 20.5 million bales.
    
The balance is likely to be docked overseas as global cotton stocks are likely to decline for the fourth consecutive season to 45.4 million bales, the lowest since FY'97 owing to more consumption from China, the world's largest consumer and a weak harvest in Pakistan, China and Tanzania due to floods, Citi said.
    
Meanwhile, the Indian government has capped duty-free exports of cotton at 5.5 million bales. Exporters have already started registering.
    
"Thus, while higher global prices and buoyant demand could have resulted in significant benefits for trade, the cap on exports would limit gains (for cotton traders)," Citi added.
    
India is already witnessing double digit food inflation and a spurt in value of real estate deals.
    
A World Bank report on October 8 said, "In India alone, estimates of the housing shortage range from 20 million to 70 million yet as much as half of this excess demand can be profitably serviced by the housing and housing finance markets."
    
The report pointed out that it might be "commercially viable" in India to build housing units for 23-28 million households, representing 35 to 45 per cent of country's urban population, whose monthly household incomes are in the range of Rs 5,000-11,000.