India’s Trade Deficit Data Reflects Deepening Domestic Slowdown, Say Brokerages

India’s trade deficit narrowed to its lowest in seven months in September led by lower imports. Analysts said it reflects deepening of the demand slowdown in the country.

The gap between exports and imports stood at $10.86 billion last month against $13.45 billion in August, data released by the commerce ministry showed. That compares with the median estimate of a $12.9-billion deficit in Bloomberg’s survey of 20 economists.

Both exports and imports fell during the month. Exports dipped 6.6 percent year-on-year to $26 billion, while imports declined 13.9 percent to $36.9 billion. That, according to Edelweiss Securities, reflected a lower domestic demand. “The consistent fall in core imports reflect worsening underlying domestic demand. Even the festive seasonality is doing little to cheer demand,” the research firm said in a report.

Credit Suisse and IDFC First Bank agreed.

Here’s what the brokerages had to say...

Credit Suisse

• A large part of export slowdown is because of synchronised global slowdown as exports have been weak for most nations.
• Fall in imports is a reflection of domestic economic weakness, likely exacerbated by de-stocking.
• Deficits should rise from here.
• At the trailing 12 months of $173 billion, current account deficit should be around 1.5 percent of GDP.
• The rupee should stay stable preventing windfall gains for exporters like IT.
• Local economic momentum continues to worsen.
• IT companies may remain safe havens.

Edelweiss Securities

• The recent trade figures draw a relatively benign picture of domestic and global demand dynamics.
• The worsening of imports was partly helped by the base effect.
• Budgetary announcements on higher fuel excise duties might have been impacting fuel demand in industrial segments, countering sequential uptick in oil prices.
• For FY20, expects CAD/GDP to ease to 1.9 percent against 2.1 percent in FY19, assuming average Brent prices at $65 a barrel.
• Expects exports growth to moderate further amid slowing global demand.
• Import growth is likely to ease, helped by lower Brent prices and lower domestic demand.
• Expects some improvement in capital account in FY20, implying balance of payment surplus of $16 billion.
• Bias for a weaker rupee remains on the back of near-term growth concerns and global idiosyncrasies. Expects rupee to range between 69 and 73.50 in rest of FY20.

IDFC First Bank

• The sharp compression in trade deficit figures indicates downside risk to FY20 current account deficit estimate of 2.0 percent of GDP.
• The sharp dip in oil import volumes is likely due to lower oil imports from Saudi Arabia whose oil refinery facilities were attacked in September.
• The trend in non-oil, non-gold imports remained weak, contracting for the eighth consecutive month, indicating continued domestic demand weakness.
• For the full year, services surplus estimated at $84 billion versus $82 billion in FY19.
• Could see some revival in domestic demand conditions in second half of FY20, supported by accommodative monetary policy as well as rise in government expenditure.