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India’s trade deficit narrowed in January from the previous month, with exports and imports contracting. That exports could weaken due to the global slowdown was a given and that was the trend in the past few months. However, imports for the month decelerated to -3.6 per cent year-on-year (yoy), sharper than -0.2 per cent in December.
On the surface, it brings good tidings of the possibility of a downward revision in India’s current account deficit (CAD) that has been pegged by most analysts at 3 per cent of gross domestic product (GDP) this fiscal year. Softening crude prices that are off their decadal highs have eased pressures on CAD and the balance of payments.
But falling imports could be a double-edged sword. The Chart of the Day in today’s edition shows that non-oil, non-gold imports shrank from a year ago for the first time since October 2020, during the depths of the pandemic. This signals loss of growth momentum in the domestic economy. A Nomura report highlights, “Our analysis shows that while growth in consumer and investment goods imports have contracted, import growth of commodities (ex-agri and oil) declined, including gold imports, which have plunged to almost -71 percent y-o-y in January.” Softer prices and a softening of domestic demand after the festive season may have trimmed imports, too.
Like it or not, India’s trade deficit is linked to crude oil import growth, which rose y-o-y in January at a faster pace than it did in December. Indications are that global demand for crude oil would increase in 2023 which may keep prices elevated. The International Energy Agency also raised its demand growth estimate for 2023 for the third month in a row on the back of a resurgent China, improved outlook for Europe with a weaker dollar providing additional tailwind for oil. (Details in this S&P report).
Along with this uncertainty is the fall in India’s exports, particularly in engineering goods, gems, jewellery, textiles and leather. What’s worrisome is India’s dependence on US and Europe for many exports is high. Besides, India’s growth cycles have become highly synchronised with those of advanced economies over the years. The good news in trade data is that the services surplus improved in January compared to December levels.
While all these data points give insights into past activities, investor appetite for risk assets hinges on sentiment. The Bank of America survey of global fund managers this month shows improved sentiment. The net percentage of fund managers saying that a recession is likely, fell from 77 percent last November to 24 percent in this month’s survey. But, like most surveys, this too comes with a caveat, that is, stagflation is not yet ruled out in the global economy.
Investing insights from our research team
City Union Bank: Should investors bet on this stock?
IRCTC Q3 FY23: Why not the right stock to ride the boom in the travel sector
SAIL: Why we stay neutral on the stock
PNC Infratech: Execution moderates in Q3; elevated infra budget brightens outlook
Bharat Forge Q3: Strong set despite bumps in global markets, poised to grow
What else are we reading?
Why China is re-calibrating its BRI strategy
Vodafone-BSNL merger could be disastrous, as the Air India experience shows
Start-up Street: Founders with very low stakes can pose serious risks
Bharat Forge: Fixing overseas operations key to earnings ramp-up
The US plan to become the world’s cleantech superpower (republished from the FT)
The mega Air India order for 470 airplanes embody Indian economy’s take-off to greater heights
Lighten the burden of indirect tax for the poorer Indian households
IFSCA has its work cut out. Will it be an effective regulator?
Technical Picks: Gold mini, Reliance, Nifty, Borosil Renewables and Tata Motors (These are published every trading day before markets open and can be read on the app).
Vatsala KamatMoneycontrol Pro