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| India – Trade deficit rebounds
After having declined to a four year low of USD2.6bn in December, India’s trade deficit
rebounded to USD8bn in January. The widening was driven by a 24% yoy jump in non-oil
imports. Exports remained strong rising 32% whereas oil imports declined for a second
month in row (January: -7.8% yoy).
The rebound in the trade deficit has come ahead of a pick-up in oil imports. Considering that
India’s volume oil imports tend to be sticky over a longer period, the recent rise in oil prices
will have a knock-on impact on the trade accounts in the coming months. Our best guess is
that the monthly trade deficit will rise further and stabilise at around USD11bn per month.
This level is consistent with a current account deficit of over 3%.
What could change this picture is a durable drop in non-oil imports. Our regular readers
would recall our scepticism over the accuracy in the industrial production numbers
particularly in light of their divergence from the PMI i.e. the slowdown in industrial production
has been far in excess of that in the PMI. The Q3 FY11 (fiscal year ending March 2011) GDP
number has however, forced us to re-think. Though GDP growth during the quarter was a
solid 9.7% yoy (by expenditure), it was characterised by significantly weaker investment
activity. Capital formation in the economy increased only 6% yoy (-20% qoq saar) after
growing 18% yoy in the previous quarter. This slowdown, if it persists would impact capital
good imports. Capital good imports account for around 15% of overall imports and by
category are the third largest.
The outlook for the investment cycle is uncertain. The FY12 budget does extend the array of
financing available for infrastructure investment but the poor investment climate rather than
funding has been the main constraint to infrastructure investment. Therefore, we do not think
that fiscal sops alone will be particularly useful. Political stability and the initiation of the
reforms process will be more important.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
| India – Trade deficit rebounds
After having declined to a four year low of USD2.6bn in December, India’s trade deficit
rebounded to USD8bn in January. The widening was driven by a 24% yoy jump in non-oil
imports. Exports remained strong rising 32% whereas oil imports declined for a second
month in row (January: -7.8% yoy).
The rebound in the trade deficit has come ahead of a pick-up in oil imports. Considering that
India’s volume oil imports tend to be sticky over a longer period, the recent rise in oil prices
will have a knock-on impact on the trade accounts in the coming months. Our best guess is
that the monthly trade deficit will rise further and stabilise at around USD11bn per month.
This level is consistent with a current account deficit of over 3%.
What could change this picture is a durable drop in non-oil imports. Our regular readers
would recall our scepticism over the accuracy in the industrial production numbers
particularly in light of their divergence from the PMI i.e. the slowdown in industrial production
has been far in excess of that in the PMI. The Q3 FY11 (fiscal year ending March 2011) GDP
number has however, forced us to re-think. Though GDP growth during the quarter was a
solid 9.7% yoy (by expenditure), it was characterised by significantly weaker investment
activity. Capital formation in the economy increased only 6% yoy (-20% qoq saar) after
growing 18% yoy in the previous quarter. This slowdown, if it persists would impact capital
good imports. Capital good imports account for around 15% of overall imports and by
category are the third largest.
The outlook for the investment cycle is uncertain. The FY12 budget does extend the array of
financing available for infrastructure investment but the poor investment climate rather than
funding has been the main constraint to infrastructure investment. Therefore, we do not think
that fiscal sops alone will be particularly useful. Political stability and the initiation of the
reforms process will be more important.
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