India Economy Foreign Trade: No export turnaround on the horizon - Anand Rathi Financial Services

The trade deficit for May15 came at $10.4bn, slightly lower than in Apr15. Exports and imports continued to contract, respectively, 20.2% and 16.5%. Low crude prices and poor global growth have shrunk exports, even as the lagging impact of low crude prices kept our import bill low. We are cautious on export growth; a turnaround looks some time away. Import growth would be fuelled by the appetite for gold and the upward trajectory of crude prices. Overall, we expect the monthly trade deficit to hold at present levels.

Exports continue to slide. May15 exports contracted 20%. In the past four months, exports have averaged a 17.3% contraction. In absolute terms, exports improved only slightly, to $22.3bn. The lagged impact of low oil prices is visible in the shrunken figures.

Imports, too, in the negative. May15 imports shrunk 16.5% (vs. Apr15s 7.5% fall). For the past six months imports have been in the negative. Here again, we see that, in absolute terms, imports fell a bit, to $32.8bn.

Oil imports in single digits. For the fifth month running, oil imports held in single digits. For May15 the oil import bill came at $8.5bn (firming up from the Apr15 figure of $7.4bn). Oil imports contracted an average 35.7% since Oct14.

Non-oil growth turns negative. In May15 non-oil imports turned negative (-2.2%) for the first time since Aug14. This stemmed from the fall in the absolute figure, supported by an unfavourable base. Gold imports, too, in May15 were at a three-month low of $2.4bn.

Trade-deficit figures stabilising. The May15 trade deficit improved to $10.4bn (a three-month-low). The Apr-May15 trade deficit exactly mirrors the year-ago (Apr-May14) figures. The soft merchandise trade figures helped contain the Q4 FY15 CAD to $1.5bn (0.3% of GDP).

Services trade surplus continues falling. Services trade data showed that the trade surplus slipped to $5.7bn in Apr15 (vs. $6.2bn in Mar15). The Apr15 figure slid to an eight-month-low.

Assessment and outlook. Exports continue soft following low crude prices and no visible pick-up in global growth. At present, growth in the US is in the negative, China's growth has decelerated to a six-year-low and only slight growth can be seen in the euro area and Japan. The poor growth outlook would impact our export growth. Import growth, on the other hand, might bounce back if gold imports continue trending up. Good import growth in electronic goods and transport equipment are, on the other hand, positive for the economy. With comfortable external balances, the short-term pressure on the exchange rate is contained. An unanticipated US rate hike however might pose a challenge.

Source : Equity Bulls

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