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MOSL: ECOSCOPE-1QFY19 CAD below expectations; Sharp fall in capital inflows leads to reserve drawdown of USD11.3b

ECOSCOPE: 1QFY19 CAD below expectations; Sharp fall in capital inflows leads to reserve drawdown of USD11.3b

 

• India's current account deficit (CAD) came in at a 5-year high of USD15.8b (2.4% of GDP) in 1QFY19 as against USD15b (2.5% of GDP) in the year ago quarter. The number is below our/consensus estimate of USD16.7b/USD17.3b. While the merchandise trade deficit rose in the quarter, it was partially offset by higher invisible earnings.
• Capital inflows came in at a 9-quarter low of USD5.2b (0.8% of GDP) in 1QFY19 as against USD26.9b (4.5% of GDP) in 1QFY18, and at an average quarterly level of USD22.8b during FY18. Consequently, India witnessed a drawdown of USD11.3b from its reserves in 1QFY19 - the largest drawdown in six years.
• Total domestic savings (implied from the difference between investments and CAD) declined to 28.6% of GDP in 1QFY19 from 29.1% in 1QFY18. This was the lowest savings rate in any first quarter in at least seven years.
• We expect India's CAD to widen to 2.8% in FY19 from 1.9% in FY18 and slightly higher than our of 2.6%. The revision in our forecast is largely due to a downward revision in the nominal GDP estimate in dollar terms owing to the rapid depreciation seen in the INR in recent months.