Foreign Trade -- Trade deficit narrows; stronger rupee to hurt exports soon :: Religare

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Foreign Trade
Trade deficit narrows; stronger rupee to hurt exports soon

The merchandise exports and imports increased by 23.2% and 26.1% YoY for
the month of September’10, to US$ 18.02bn and US$ 27.1bn respectively.
Exports were revived by last year’s lower base as well as revival in global
demand for sub-continent goods, while imports surged owing to the strong
domestic consumption and an appreciating rupee. The trade deficit for the
month of September stands at a 6-month low of US$ 9.1bn as against US$ 13bn
last month. We expect external trade deficit to average at US$ 10.5bn per
month for the rest of the fiscal, with the whole fiscal estimate at US$ 126bn ,
along with an upside bias now as the rupee is likely to gain strength further and
further headwind from slowing global economic revovery and unfavourable
base.

Exports growth healthy but like to be hit by strong rupee: Exports grew by an
annual 23.2 per cent to US$ 18.02bn in September on lower base of last year as
well as revival of global demand for sub-continent goods and export promotion
schemes by commerce ministry. The sectors like engineering, gems & jewellery,
readymade garments, marine products, leather & leather products have
outperformed other sectors in this month. However, we believe that when new
orders are placed in the coming months, the stronger rupee will adversely impact
the competitiveness of Indian exports.

May match the fiscal target of $200bn: The FTD exports have already reached
US$ 103bn, on its way to achieve ministry fiscal target of $200bn. We expect
exports to manage this target, with the downside risk increasing, if the rupee
appreciates further and capital flows continue at the recent momentum.
Trade deficit at record 6-month low, but still a concern: The merchandise
imports have increased 29.9% to US$ 166.5bn during April-September 2010,
while the cumulative trade deficit stood at US $63.2bn. We expect the fiscal end
trade deficit to stand at US$ 126 bn, with an upside bias, much higher than the
pre-crisis level of US$ 118bn in FY07.