Do it yourself

The INR has been under steady depreciation pressure for the past few months. USDINR is down about 4.4% year-to-date, raising familiar concerns about stability and comparisons to the 2013 balance-of-payments scare. It’s worth noting that the recent 50% US tariffs—which grabbed headlines—are not the main reason behind the rupee’s weakness. India’s exports have broadly held up in the first ten months of the financial year. The pressure has come instead from three other factors: ·           Higher imports, largely driven by a jump in gold imports ·           Weak FDI inflows ·           Persistent FPI outflows Together, these have widened the current account deficit and strained the balance of payments, naturally weighing on the currency. Where sentiment meets misunderstanding In the public narrative, the exchange rate of the INR often gets linked—incorrectl...

The macro environment in India looks stable and resilient, despite the scare of war and trade uncertainties. The south-west monsoon has started on a buoyant note, and IMD reconfirmed its forecast of above normal (106% of LPA) for the current season. Enhanced dividend payout by the RBI has lessened fiscal slippage concerns. Concerted efforts by the RBI to improve system liquidity have also yielded positive results. Fiscal strength, benign inflation outlook, and improved liquidity have resulted in the benchmark 10yr bond yields falling to the lowest level since 2021; reversal in FPI flows since March 2025; stability in currency and improved growth outlook. Despite notable stability there are few areas of concern that investors should be mindful of. In particular, I shall be watching the development of external situations closely. External situation - not worrying presently, but could deteriorate India's external sector has shown resilience in recent years, but there are signs o...

  Recently, the Reserve Bank of India published the results of the 83 rd   round of the Survey of Professional Forecasters. In the latest Survey, professional forecasters have mostly reiterated their previous estimates. The forecasters have assigned the highest probability of the real GDP growth remaining between 6.0% and 6.4% during FY24 and FY25. No significant acceleration is expected in the growth in FY25. The FY24 growth is seen to be mostly front-ended, with the real GDP expected to grow (y-o-y) by 7.5% in Q1FY24 and thereafter moderate to 6.2% in Q2, 5.9% Q3, and further to 5.5% in Q4. The participants were quite sanguine about the price condition remaining under control with CPI inflation averaging 4.7% in FY25. The trade situation is expected to deteriorate further in FY24, before recovering in FY25. The trade deficit is likely to be close to 1.5% in FY24 as well as FY25. No significant improvement is expected in investment and savings rates. The key highlights of the...

Economy: Weak input inflation and pullback in June trade (AXIS Capital) Input inflation continues to fall and should exert downward pressure on CPI goods inflation hereafter. Meanwhile, trade trends are showing signs of weakness after a sustained improvement in recent months. On the one hand, the moderation in the global industrial cycle, as seen from manufacturing PMIs due to tighter financing conditions, could keep a lid on India’s goods exports growth. On the other hand, pockets of buoyant domestic demand and food inflation will likely dictate RBI’s pause. June merchandise trade deficit fell by USD 2 bn to USD 20.1 bn, led by a weaker oil imports bill. Exports, in value terms, have slowed further, on ‘gems & jewelry’, engineering goods, and petroleum. Meanwhile, the imports bill was also weaker, led by oil, coal, machinery, and electronics. Our volume estimates for goods trade also indicate some pullback in exports and imports after witnessing a ramp-up in May. Weaker petro...

  The Financial Stability Report released by the RBI a few weeks ago, highlights the external sector challenges being currently faced by the Indian economy. The report however seeks to dispel the fears of any balance of payment crisis like 2013. It also assures about the adequacy of reserves to handle the present situation and stability of the INR. External sector facing challenges India’s merchandise trade deficit increased to a staggering US$198.3bn during April-November 2022, as compared to US$115.4bn in the corresponding previous period. Strong headwinds emanating from still elevated commodity prices, global economic slowdown, volatile capital flows and higher imports due to adverse terms of trade shock continue to exert pressure on India’s external account.  Rising oil import bill limits policy flexibility; CAD rises sharply India’s share in global crude oil consumption increased from 3% in 2000 to 5.2% in 2021. India presently accounts for almost 20% of each barre...

Yesterday some media reports indicated that  according to an internal assessment by the finance ministry   “India balance of payment (BoP) is likely to  slip into a $45-50 billion deficit in the current fiscal year.” ( see here ) This is obviously not good news for the INR exchange rate. Nonetheless, USDINR has rallied to its best level in almost two months, in the past two days. It is pertinent to note that India’s current account has remained mostly negative since the global financial crisis (2008), with a brief period of surplus during Covid-19 pandemic. India’s current account deficit was $23.9 billion in the quarter ended June 2022, the worst since the last quarter of 2012. India had witnessed a serious current account crisis in 2013 that required the RBI and government to initiate some drastic measures like reducing limits under LRS. Of course, the present situation is not as dire as 2013, since we have a much stronger Fx reserve position now as compared to 2013. No...