Demand conditions for Indian exporters not as bad as feared
Updated: Nov 10, 2015 04:57:52pm
New Delhi, Nov 10 (KNN) India Ratings and Research (Ind-Ra) said that the aggregate 15.1 per cent YoY fall in Indian merchandise exports in US dollar (USD) terms over the 10 months ended September 2015 was mainly driven by the fall in global commodity prices and sharp weakening of the euro (averaged 17.1 per cent lower YoY).
The volume demand for Indian exports may not have suffered significantly during the period. In fact, export volumes in certain categories such as automobiles continued to increase, it said.
According to the release, reports of crude oil and its products (18.3 per cent of FY15 merchandise exports) declined 45.4 per cent yoy in value over December 2014 to September 2015, in line with the fall in crude prices.
Similarly, agriculture exports (9.7 per cent) declined 19.1 per cent yoy on account of a decline in the prices of agricultural commodities.
The decline in these two categories alone accounted for around three-fourths of the overall decline in merchandise exports. Also, the sharp fall in the prices of other commodities along with lower crude oil rates has depressed the prices of many intermediate and manufactured goods. Consequently, the value of exported items has shrunk, it said.
Ind-Ra said it believed that the prices of most major commodities are close to their bottom. However, merchandise exports (in USD) are expected to post single-digit negative growth for the rest of FY16 given that commodity prices will continue to be lower on a year-on-year basis. A marginal uptick in exports (in USD) is likely from 1QFY17 driven by the base effect.
It also said that industrial activity and personal consumption in the US and Europe grew at a low yet steady pace in 1HFY16. Demand conditions in the US and Europe are likely to continue to grow at a gradual pace and therefore will support export volumes from India in the near term.
However, export growth to Asian (49.6 percent) and African (10.6 percent) regions is likely to remain subdued as economic activity in these regions has moderated due to falling commodity prices, volatile exchange rates, and moderating domestic demand. Thus, an uptick in overall export volumes is as unlikely as is a sharp downturn, it said.
Ind-Ra expected the performance of export-oriented sectors to vary. A modest growth in export volumes is likely for sectors such as pharmaceuticals, textiles, automobiles and auto components typically targeted at the US and Europe.
However, exports of items such as gems and jewellery will stay subdued as a result of weak demand for discretionary purchases by customers. IT exports will continue to grow only progressively as incremental IT spending by global corporates will remain modest, it said.
The agency believed that the nominal income growth of corporates in most exporting sectors will remain depressed due to the deflationary impact of falling commodity prices.
Also, most Indian corporates having an exposure to Europe may not be able to increase product prices to offset the decline in margins caused by the depreciation of the euro due to stiff competition from other Asian exporters. The credit profile of corporates will not improve even in those sectors where a modest demand improvement is likely, added Ind-Ra. (KNN Bureau)
The volume demand for Indian exports may not have suffered significantly during the period. In fact, export volumes in certain categories such as automobiles continued to increase, it said.
According to the release, reports of crude oil and its products (18.3 per cent of FY15 merchandise exports) declined 45.4 per cent yoy in value over December 2014 to September 2015, in line with the fall in crude prices.
Similarly, agriculture exports (9.7 per cent) declined 19.1 per cent yoy on account of a decline in the prices of agricultural commodities.
The decline in these two categories alone accounted for around three-fourths of the overall decline in merchandise exports. Also, the sharp fall in the prices of other commodities along with lower crude oil rates has depressed the prices of many intermediate and manufactured goods. Consequently, the value of exported items has shrunk, it said.
Ind-Ra said it believed that the prices of most major commodities are close to their bottom. However, merchandise exports (in USD) are expected to post single-digit negative growth for the rest of FY16 given that commodity prices will continue to be lower on a year-on-year basis. A marginal uptick in exports (in USD) is likely from 1QFY17 driven by the base effect.
It also said that industrial activity and personal consumption in the US and Europe grew at a low yet steady pace in 1HFY16. Demand conditions in the US and Europe are likely to continue to grow at a gradual pace and therefore will support export volumes from India in the near term.
However, export growth to Asian (49.6 percent) and African (10.6 percent) regions is likely to remain subdued as economic activity in these regions has moderated due to falling commodity prices, volatile exchange rates, and moderating domestic demand. Thus, an uptick in overall export volumes is as unlikely as is a sharp downturn, it said.
Ind-Ra expected the performance of export-oriented sectors to vary. A modest growth in export volumes is likely for sectors such as pharmaceuticals, textiles, automobiles and auto components typically targeted at the US and Europe.
However, exports of items such as gems and jewellery will stay subdued as a result of weak demand for discretionary purchases by customers. IT exports will continue to grow only progressively as incremental IT spending by global corporates will remain modest, it said.
The agency believed that the nominal income growth of corporates in most exporting sectors will remain depressed due to the deflationary impact of falling commodity prices.
Also, most Indian corporates having an exposure to Europe may not be able to increase product prices to offset the decline in margins caused by the depreciation of the euro due to stiff competition from other Asian exporters. The credit profile of corporates will not improve even in those sectors where a modest demand improvement is likely, added Ind-Ra. (KNN Bureau)
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