India: May export growth pole-vaults on oil – Nomura

Analysts at Nomura note that India’s export growth sharply recovered to 20.2% y-o-y in May from 5.2% in April, significantly higher than expected (Nomura: 12%).

Key Quotes

“A sharp spike in oil export growth to the tune of 104.5% y-o-y has caused the distortion, aided by low base effects. Stripped of these effects however, sequential momentum in non-oil exports has showed signs of slowing – contracting by 0.65% m-o-m (seasonally adjusted) in May vs. 0.13% growth in April.”

“Import growth rose to 14.8% y-o-y in May from 4.6% in April (Nomura: 7.2%). Oil imports remain elevated, gold imports continued to contract, while core (non-oil, gold) imports rose to 13% y-o-y from -0.1% in April. We estimate that core import volume growth increased to 6.5% y-o-y (3mma) from 3.7% in April. Despite higher exports, the trade deficit widened to a four-month high of USD14.6bn in May from USD13.7bn in April, due to elevated imports.”

“We expect the next few prints of export growth to be high given the relatively lower base and positive effects of currency depreciation, our concerns on working capital constraints remain. Given the ongoing cyclical recovery domestically amid elevated commodity prices, we expect the current account deficit to widen to 2.7% of GDP in FY19 versus 1.9% in FY18. Funding is likely to remain a challenge, as the basic balance of payments (current account + net FDI) continues to be negative.”