India September trade: Trade deficit narrows on stronger exports: Goldman Sachs

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Merchandise imports declined by 3.3% qoq in September, after a 6.4% qoq fall in August. On a yearly basis,
imports grew 26.1% yoy compared to 32.2% yoy growth in the previous month. On a sequential basis, non-oil
imports rose 7.3% qoq, reflecting stronger domestic demand, even as oil imports declined (-16.1% qoq).
Merchandise exports grew by 1.6% qoq in September, from a decline of 3.7% qoq in August. On a yearly basis,
exports grew 23.2% yoy compared to 22.5% yoy growth in the previous month.
The trade deficit narrowed to US$9 billion from US$13 billion in August largely due to stronger exports.
Domestic demand remains robust, as non-oil imports accelerated sequentially, even as oil imports declined.
Exports surprised on the upside, but we think it is too early to tell whether this can be sustained, given the
likelihood that the weakness in external demand would continue. Despite some narrowing of the trade deficit in
September, we think the current account deficit will continue to increase through the remainder of FY11 due to
robust domestic demand and weak external demand.
We continue to expect the INR to appreciate against the USD, but only gradually. Weakness in the USD and
a higher GDP growth and rate differentials will likely continue to drive capital inflows supporting the INR, but a
rising current account deficit and intervention by the Reserve Bank of India may cap the upward movement of the
INR against the USD. Our 3, 6, and 12-month USD/INR forecasts are unchanged at 44, 43.4, and 43 respectively.