Crude flare-up to singe textile company fortunes

Textile companies are likely to see shrinking demand and compression of bottomline in the wake of galloping crude oil prices, according to a second survey on Indian textile business confidence by global market intelligence company YarnsandFibers.

As major fibre intermediates are derived from petroleum products such as naphtha, rising crude oil prices may set in inflationary trend, percolating down to fibre intermediates and fibres, the survey said.

Three business confidence indices- the YnFx Business Confidence Index (measure of future prospect), YnFx Current Business Status Index (measure of current status) and YnFx Business Margin Expectation Index (measure of pricing input and output) - constructed by YarnsandFibers reveal that textile firms are less optimistic over their performance during the quarter ending September 2005 compared with their performance in June quarter.

The data for the construction of YnFx Textile Business Confidence Index is derived from the responses sent back by business firms across the country in April and May 2005. The index finally derived will be an indicator of the business and economic sentiment. Highest index is 100 while the lowest is 0.

The YnFx Business Confidence Index for the quarter July to September 2005 stands at 83.9, while the current Business Status Index is at 66.1 for the quarter ended June 2005, showing a stable business sentiment.

In the preceding survey for quarter ended June 2005, the Business Confidence Index had stood higher at 86.5 and the Current Business Status index then was at 75.0 for the quarter January to March 2005, signalling a stable sentiment.

However, the YnFx Business Margin Expectation Index, which measures the firms' pricing capabilities for their end product as well as for the inputs, stands at 48.4 for July-September quarter down from 50.0 for the quarter April to June 2005 showing worsened a business sentiment.

The survey said a majority of firms now believe that the greatest source for enhancing their performance will be developing new products although better pricing capabilities would continue to give them secular growth.

There is a noticeable change in the export destination seen in this survey as more firms are looking at Europe and USA as major export destinations while Asia continues to be the basic market.

On the constraints front, as many as 48 per cent of firms have indicated that demand would hurt their performance.

While 33 per cent said that power was a major constraint, 19 per cent indicated that labour was impeding growth. About 14 per cent feel that finance and infrastructure were hurdles to growth.