will government's massive surge in investment ... - Myiris.com

Apr-Jun 2013 Earnings Preview
Out of 36 meteorological divisions, rainfall has been excess over 21, normal over 11
and deficient over 4 (mainly Northeast and Sub-Himalayan West Bengal). 91% of
India’s area has received excess/normal rainfall whereas 9% has received
deficient/scanty rainfall.
Trade deficit to narrow considerably from
June‐September 13
India’s current account deficit (CAD) moderated sharply to 3.6% of GDP in 4Q FY13 ($
18.2 bn) as compared to a historically high level of 6.5% of GDP in 3Q FY13 ($ 31.8
bn) and $ 21.7 in 4Q FY12. For FY13 as a whole CAD is at 4.8% of GDP ($ 88.2 bn) as
compared to 4.2% of GDP ($78.2 bn) last year. Trade deficit has risen from $ 189.8
bn (10.2% of GDP) to $ 195.7 bn (10.6% of GDP). The rise can be attributed to a fall
of 1% in merchandise exports from $ 309.8 bn to $ 306.6 bn and a sharp rise in gold
imports. Gold accounted for around 11% of India’s imports. Oil accounts for about
30% of India’s imports.
Gold imports set to plummet due to
stringent RBI measures, rise in import duty
and plunge in wedding season demand
from June to September
CAD to moderate to 4.3% of GDP in FY14 as
compared to 4.8% in FY13
We believe that after seeing a sharp spike in trade deficit in April 2013 ($ 18 bn) and
May 2013 ($ 20 bn) mainly owing to a humongous rise in gold imports at 142 tons ($
7.5 bn) in April 13 (138% rise YoY) and 162 tons ($ 8.4 bn) in May 13 (90% rise YoY),
trade deficit would show a marked narrowing from June to September period.
Government has sharply increased import duty on gold to 8% (it was around 4%
couple of quarters back) and RBI has put in place stringent measures to dissuade
gold imports. With the onset of monsoons the demand for gold jewellery tapers off
till September. Farmers are busy sowing and the traditional Hindu wedding season
ends in May and re-starts only after the kharif harvest when major festivals like
Navratri and Diwali happen. As we had expected gold imports in June have
plummeted to just 31.5tons resulting in a massive savings of around $7 bn in trade
deficit only on this count. For the year as a whole India’s Chief Economic Advisor Mr.
Raghuram Rajan expects CAD to moderate to 4.3% of GDP on the back of measures
to dampen gold imports and softer global commodity prices. The RBI Governor has
consistently maintained that the current levels of CAD are clearly unsustainable and
it needs to be brought down to 2.5% of GDP.
May’13: WPI cooling off to 4.7%, core
inflation at 41‐month low of 2.4%, CPI
continuous to remain elevated (10.68%)
due to high food inflation (13.24%)
Rapid spread of monsoons across the
country, doubling of area under cultivation,
four‐fold rise in pulses and five‐fold rise in
oilseeds sowing area expected to have
salutary impact on food inflation
India’s WPI in May13 has fallen to 4.7% from 4.9% in April 2013 and 7.4% for the
whole of FY13. Non-food, manufacturing or core inflation that indicates the pricing
power among producers has plummeted to a 41-month low of 2.4% in May 13 as
compared to 2.7% in April 2013. CPI for May 2013 inched up to 10.68% from 10.28%
in April 2013 and 10.14% in May 2012 mainly led by food inflation which rose to
13.24% in May 2013 as against 12.39% in April 2013 and 10.61% in May 2012. We
believe that with near-normal monsoons that have covered the entire country at the
fastest clip and a near doubling of crop area under cultivation (notably the rise is
four-fold for pulses and five-fold for oilseeds), the country should expect a record
kharif harvest. This would have a salutary impact on food inflation which has proven
to be the stickiest. Cooling food inflation would weigh on RBI’s calculus when
deciding the necessity and pace of rate cuts.
July 8, 2013 17