Goods trade deficit in May widened to US$23.8 bn, led by a sharp increase in oil trade deficit. Services trade surplus continued to moderate in line with the recent trend. We maintain our FY2025 CAD/GDP estimate at 1.1% (widening from 0.8% in FY2024E), given firmer domestic growth relative to global growth. We retain our call for USD-INR in the 83.25-83.75 range in the near term.
Broad-based sequential pickup in exports in May
Exports in May grew 9.1% yoy to US$38.1 bn (April: US$34.9 bn) (see Exhibits 1-2). The sequential pickup of 9% mom was largely led by surge in non-oil exports, with oil exports growing marginally (see Exhibits 3-5). On a sequential basis, the non-oil export growth in May were mainly driven by gems and jewelry, engineering goods, electronic goods and textiles, whereas the exports of chemicals declined.
Oil imports led widening of trade deficit
Imports in May increased 7.1% yoy to US$61.9 bn (April: US$54.1 bn; 14.4% mom) (see Exhibits 1-2). Despite fall in crude oil prices in May, the oil imports surged 21.1% mom while non-oil imports registered 11.5% mom growth (see Exhibits 3-5). Within non-oil imports, the investment-led imports surged by 16.5% mom while the consumption-led imports grew 5.2%. The trade deficit widened to US$23.8 bn in May, led largely by higher oil trade deficit.
Services trade surplus continues to hold steady; softening bias
Services trade surplus in May at US$12.9 bn, moderated from April's upwardly revised print of US$13.7 bn-April's surplus according to the initial release was at US$12.6 bn (see Exhibit 6). While the recent trend suggests moderation in service trade surplus to an average monthly run-rate of US$13 bn compared to the 4QCY23 average of US$15 bn, we continue to pencil in a modest increase in the services trade surplus in FY2025 over FY2024, until some clarity emerges on global slowdown.
Maintain our FY2025 CAD/GDP estimate at 1.1%
We maintain our FY2025 CAD/GDP estimate at 1.1% (from 0.8% in FY2024E) as we await the details in the 4QFY24 CAD/BOP release due in end-June, given a relatively stronger domestic demand compared with global demand (see Exhibit 7). Further, we continue to expect steady capital account surplus in FY2025E, resulting in a BOP surplus of around US$34 bn (moderating from around US$52 bn in FY2024E).
While we expect the external sector's balance to remain comfortable, we remain wary of (1) re-emergence of geopolitical conflicts impacting commodities' prices and supply chains, and (2) delays to the US Fed's rate easing cycle impacting capital flows. Despite the recent mixed batch of US economic data (especially the softer inflation data), we expect the Fed to remain on a wait and watch mode at least through the September FOMC, which should continue to lend support to the US dollar. However, the INR could get some respite from the beginning of capital flows due to the bond index inclusion. We continue to expect the USD-INR to trade in the range of 83.25-83.75 over the near term, with any sharp moves on either sides being capped by RBI's FX intervention. |
