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MOSL: ECOSCOPE-2QFY19 CAD marginally below expectation; Capital inflows insufficient to fund CAD

ECOSCOPE: 2QFY19 CAD marginally below expectation; Capital inflows insufficient to fund CAD, leading to reserve drawdown of USD1.9b

 

• India’s current account deficit (CAD) came in at a five-year high of USD19.1b (2.9% of GDP) in 2QFY19, as against USD6.9b (0.2% of GDP) in the year-ago period. This, however, is marginally below our/consensus estimate of USD19.7b/USD19.8b. The increase in CAD can primarily be attributed to higher gold and net oil imports. Excluding gold and oil, CAD amounted to USD13.1b (2% of GDP), marginally lower than USD13.2b (2.1% of GDP) in 2QFY18.
• Capital inflows improved to USD16.3b (2.5% of GDP) in 2QFY19 from USD5.4b (0.8% of GDP) in 1QFY19 (last-four-quarter average: USD17.4b). However, these inflows were insufficient to finance CAD, leading to a drawdown of USD1.9b from its reserves in 2QFY19.
• Total domestic savings (implied from the difference between investments and CAD) declined to 28% of GDP in 2QFY19 from 29% in the corresponding quarter last year. This was the lowest savings rate in any 2Q in at least seven years.
• CAD widened to 2.7% of GDP in 1HFY19 from 1.8% in the year-ago period on account of a sharp increase in net oil imports. We estimate the full-year FY19 CAD at ~2.8-2.9% of GDP, up from 1.9% in FY18. Although this will be the highest level of CAD in six years, it will still be lower than the levels seen over FY12-13.