India Economy: Foreign Trade Small recovery in exports- AnandRathi Financial Services

The Jun15 trade deficit came in at $10.8bn, a snippet higher than in May15. Exports and imports continued to contract, respectively, 15.8% and 13.4%. Low crude prices and poor global growth have shrunk exports, even as the lagging impact of low crude prices kept the import bill low. We are cautious concerning export growth; a turnaround looks some time away. Import growth would be fuelled by the appetite for non-gold, non-oil imports. Overall, we expect the monthly trade deficit to hold at present levels.

Small recovery in export growth - Although still in contraction, export growth decelerated to -15.8% in Jun15 (vs. -20.2% the prior month). In absolute terms, exports improved only slightly, to $22.3bn. The lagged effect of low oil prices is visible in the contracted figures. Export of manufacturing goods turned positive, while the rest continued to shrink.

Imports continue in the negative - Jun15 imports shrunk 13.4% (vs. May15s 16.5% fall). In absolute terms, however, imports improved a tad, to $33.1bn (vs. $32.8bn). Gold imports in Jun15 touched a five-month low of $2bn and is shade higher than in Q1 FY15 ($7.5bn vs $7.1bn).

Oil imports stabilizing- Since the beginning of CY15, oil imports have been in single digits. For Jun15 the oil import bill came at $8.7bn (firming up from $8.5bn). Oil imports contracted an average 34.8% in the past 11 months.

Non-gold, non-oil imports bounce back- After turning negative in May15 (-3.5%), this component grew 3.2% in Jun15. While in absolute terms, there was only a slight increase, a favourable base helped the growth.

Trade-deficit figures stabilizing- The Jun15 trade deficit jumped slightly, to $10.8bn (vs. $10.4bn a month earlier). The Q1 FY16 trade deficit was $32.2bn (vs. $33bn a year ago). Services trade surplus continues falling. Services trade data showed that the trade surplus slipped to $5.6bn in May15 (vs. $5.7 in Apr15), a nine-month low.

Assessment and outlook- Exports continue soft following low crude prices and slow recovery in global growth. There was, however, a slight recovery visible in the Jun15 figures, which is likely to continue as the uncertainty regarding Greece eases and U.S. growth turns around. A China growth slowdown would be a huge risk. In imports, the turnaround is likely to be quicker. Interestingly, it is the better non-gold, non-oil imports (and oil imports to a small extent) which have pushed up the import bill. Imports of machinery goods signal growth in domestic demand. With comfortable external balances, the short-term pressure on the exchange rate has been contained. An unanticipated US rate hike, however, might pose a challenge. An unexpected flare in gold demand would be the other risk.

Source : Equity Bulls

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