Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
The current account deficit declined to 1.1% of GDP in the January-March quarter, well below the 2.1% of
GDP in the previous quarter. The deficit number fell sharply to US$5.4 billion from an upwardly revised US$10.0
billion in the last quarter. The deficit was lower than Bloomberg consensus expectation of US$6.0 billion, and our
expectation of US$10.2 billion. For FY11, the current account deficit came in significantly lower than expected at
2.6% of GDP, from 2.8% of GDP in the previous fiscal year.
A lower trade deficit caused the improvement. The merchandise trade deficit fell to US$29.9 billion from a
US$31.5 billion in the October-December quarter, driven by higher exports, and was the main reason for the
significant improvement in the current account. The invisible surplus also rose by US$3 billion, mainly due to robust
growth from software and transport services. Net exports of non-software services improved but continued to
remain in deficit at US$2.2 billion. This is being driven by business and financial services imports. Remittances
were largely flat (see Exhibit 1).
A significant slowdown in capital inflows. Portfolio investment s fell meaningfully to a US$0.2 billion compared
to US$6.3 billion in the last quarter. Net FDI also remained subdued at US$0.6 billion, same as the previous
quarter. Net external commercial borrowing moderated to US$2.4 billion from a US$3.8 billion in the OctoberDecember quarter. Overall, capital inflows fell to US$8.2 billion as compared to US$13.4 billion in the previous
quarter, lead to a small increase of US$2 billion in reserves.
External ratios remained high. Total external debt increased to US$305.9 billion in end-March from US$261
billion in end-March 2010, an increase of 17.2% in 12 months. Of the total, short-term debt of less than 1-year
maturity has risen by some 20% in the last year, and short-term debt to gross reserves has increased to 21.3%.
Gross reserves, in months of imports have remained at 7 from a peak of well over 10 months in June 2009.
We think the sharp and unexpected improvement in the current account deficit, provides comfort on a key
macro risk. From a high of 4% of GDP in 2QFY11, the quarterly deficit has come down to under 2% of GDP. That
said, we think the ‘underlying’ deficit is more in the region of 3% of GDP, as the last two quarters did not reflect
higher oil prices due to deferred payments. Indeed, the trade deficit has widened significantly in recent months from
a monthly average of US$7 billion in 4QFY11 to US$9 billion in April and US$15 billion in March. Our forecast for
the current account deficit in FY12 is at 3.4% of GDP.
The composition of capital flows and the rise in external indebtedness remain a bit of a concern. FDI fell
sharply by 62% in FY11 compared to FY10, while total external debt increased by 17%, driven by external
commercial borrowings. We would like to see a much more liberalized regime for FDI, and especially movement on
allowing FDI in multi-brand retail to improve the composition of inflows. Although the external debt ratios are still
not very high, we would continue to watch their evolution carefully for signs of latent vulnerability.
The smaller overall balance of payments surplus despite the decline in the current account deficit,
suggests that there are no clear directional pulls for the INR. We have been surprised by the resilience of the
INR against the USD in 2011 despite sharply higher oil prices. However, it has underperformed the region, and has
fallen on a trade-weighted basis. Currently, we think the movement of the INR may remain range-bound as the
overall balance of payments situation remains roughly balanced, with neither a high deficit nor a surplus.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
The current account deficit declined to 1.1% of GDP in the January-March quarter, well below the 2.1% of
GDP in the previous quarter. The deficit number fell sharply to US$5.4 billion from an upwardly revised US$10.0
billion in the last quarter. The deficit was lower than Bloomberg consensus expectation of US$6.0 billion, and our
expectation of US$10.2 billion. For FY11, the current account deficit came in significantly lower than expected at
2.6% of GDP, from 2.8% of GDP in the previous fiscal year.
A lower trade deficit caused the improvement. The merchandise trade deficit fell to US$29.9 billion from a
US$31.5 billion in the October-December quarter, driven by higher exports, and was the main reason for the
significant improvement in the current account. The invisible surplus also rose by US$3 billion, mainly due to robust
growth from software and transport services. Net exports of non-software services improved but continued to
remain in deficit at US$2.2 billion. This is being driven by business and financial services imports. Remittances
were largely flat (see Exhibit 1).
A significant slowdown in capital inflows. Portfolio investment s fell meaningfully to a US$0.2 billion compared
to US$6.3 billion in the last quarter. Net FDI also remained subdued at US$0.6 billion, same as the previous
quarter. Net external commercial borrowing moderated to US$2.4 billion from a US$3.8 billion in the OctoberDecember quarter. Overall, capital inflows fell to US$8.2 billion as compared to US$13.4 billion in the previous
quarter, lead to a small increase of US$2 billion in reserves.
External ratios remained high. Total external debt increased to US$305.9 billion in end-March from US$261
billion in end-March 2010, an increase of 17.2% in 12 months. Of the total, short-term debt of less than 1-year
maturity has risen by some 20% in the last year, and short-term debt to gross reserves has increased to 21.3%.
Gross reserves, in months of imports have remained at 7 from a peak of well over 10 months in June 2009.
We think the sharp and unexpected improvement in the current account deficit, provides comfort on a key
macro risk. From a high of 4% of GDP in 2QFY11, the quarterly deficit has come down to under 2% of GDP. That
said, we think the ‘underlying’ deficit is more in the region of 3% of GDP, as the last two quarters did not reflect
higher oil prices due to deferred payments. Indeed, the trade deficit has widened significantly in recent months from
a monthly average of US$7 billion in 4QFY11 to US$9 billion in April and US$15 billion in March. Our forecast for
the current account deficit in FY12 is at 3.4% of GDP.
The composition of capital flows and the rise in external indebtedness remain a bit of a concern. FDI fell
sharply by 62% in FY11 compared to FY10, while total external debt increased by 17%, driven by external
commercial borrowings. We would like to see a much more liberalized regime for FDI, and especially movement on
allowing FDI in multi-brand retail to improve the composition of inflows. Although the external debt ratios are still
not very high, we would continue to watch their evolution carefully for signs of latent vulnerability.
The smaller overall balance of payments surplus despite the decline in the current account deficit,
suggests that there are no clear directional pulls for the INR. We have been surprised by the resilience of the
INR against the USD in 2011 despite sharply higher oil prices. However, it has underperformed the region, and has
fallen on a trade-weighted basis. Currently, we think the movement of the INR may remain range-bound as the
overall balance of payments situation remains roughly balanced, with neither a high deficit nor a surplus.
No comments:
Post a Comment