Merchandise trade deficit narrowed to USD 33.3bn in Q2 (7.9% of GDP) due to the turnaround in export growth and decline in imports. Invisibles income remains muted despite some improvement in services exports. As a result of narrow trade deficit CAD came in at USD 5.2 bn in Q2'FY2014 from a deficit of USD 21.8 bn in Q1'FY2014.
Capital account posted a deficit led by portfolio related outflows
Foreign investment witnessed marginal inflows of USD 0.3bn as FDI net inflows (i.e. USD 6.9bn) in Q2 were negated by portfolio outflows (USD 6.6 bn). Segment wise, majority of the FII outflows were in the debt segment (i.e. USD 5.7 bn) as against equity segment where outflows were marginal (USD 0.8 bn).
NRI deposits witnessed an inflow of USD 8.3 bn during Q2 as against USD 5.5 bn in Q1. The incremental improvement under this component majorly reflects increased flows under the FCNR (B) head.
Overall, capital account witnessed a deficit of USD 5.3 bn in Q2 as against a surplus of USD 20.5 bn in Q1. Correspondingly, BoP witnessed a deficit of USD 10.4 bn in Q2 as against a deficit of USD 0.3 bn in Q1.
Outlook: Q2 CAD reading to be the best for FY2014; slight deterioration is likely in Q3 and Q4. We maintain our expectation of a USD 52 bn deficit (~2.9% of GDP) for FY2014.
Please refer to the attached document for the detailed report.
Regards,
ICICI Bank : Treasury Research
Contact:
Samir Tripathi
022-4008-7233
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