KARACHI, Aug 27: The devaluation of rupee and high infaltion will hit the textile sector along with other export-oriented and local industiress, said analysts.

”I believe that the textile sector, which is expected to import up to 25 per cent cotton, will face double negative impact on account of rupee devaluation and 24 per cent inflation in the domestic market,” said Mohammad Imran, head of research at First Capital Equities.

Analysts said since July 2008 rupee has devalued by 12 per cent against the US currency while total devaluation since beginning of this calendar year reached 24 per cent.

Currency experts do not see any positive improvement in the exchange rate during the current fiscal year as they see no hope of building up of reserves up to $15 billion.

”Being the largest sector of our economy, the textile industry might not benefit from the higher prices of textile products in the international market as both devaluation and local infaltion will negate the potential for higher textile export from the country,” said Imran.

Bankers said the textile was the biggest borrower of banks and needs huge sum of money for its working capital but the higher interest rates will hit them hard.

”The seasonal borrowing of the textile sector at a rate higher than 13 per cent will cost them much higher than last year,” said a banker. Bankers said that many textile mills will find it difficult to go for higher productivity as the cost will be greater.

Bankers said the textile sector regularly borrows for its upgradation and import of machinery and spareparts. The higher cost of borrowing due to high interest rate will face another burden due to the devaluation of rupee.

”With soaring cotton prices and rising energy cost, textile sector’s performance has witnessed a drastic slump in financial year 2008 as core profitability of listed textile sector (based on sample of 40 companies) declined by a massive 77 per cent during nine months (June-Mar) of FY08,” said an analyst at JS Research.

”The current surge in cotton prices is likely to add further pressure on sector’s margins and hence will reduce its profitability,” he said.

However, steep rupee depreciation (12 per cent against dollar ) would inflate the top line of textile companies offering some respite from soaring cost pressures, he said.

The cottton prices surged by 14 per cent in the international market, which means the imported cotton would be costlier for Pakistani importers.

”The borrowing season for the textile sector has already begun and will pick up pace in November till January. There is no guarantee that rupee will not depreciate further and interest rates will not go higher,” said the banker. If both go negative, the textile sector, which earns up to 63 per cent of export proceeds, will face a setback, he said.