FREE

MOSL: ECOSCOPE-CAD widens to 1.4% of GDP in 3QFY17-Lower investment rate implies a sharp fall in domestic savings

​ECOSCOPE: CAD widens to 1.4% of GDP in 3QFY17; Lower investment rate implies a sharp fall in domestic savings

• India's current account deficit (CAD) widened to USD7.9b (or 1.4% of GDP) in 3QFY17, slightly lower than our estimate of USD8.8b, but way below market consensus of USD12b. Higher gold imports were the key driver of wider CAD, as excluding gold, current account surplus was 0.3% of GDP v/s 0.1% in 2QFY17.
  
• Financial inflows declined to a three-quarter low of USD6.2b in 3QFY17, less than half of USD12.8b in 2QFY17. Lower capital inflows can be mainly attributed to a record decline in foreign portfolio investments (FPI) and redemption of USD18.5b on account of FCNR(B). Foreign direct investment (FDI) inflows, however, were strong at USD9.8b.
  
• Although CAD widened in 3QFY17, domestic investments declined to a 12-year low of 29.5% of GDP due to a sharp fall in savings to 28.1% of GDP.
  
• We expect CAD to narrow toward 0.3% of GDP (or USD1.8b) in 4QFY17, implying full-year CAD of 0.6% of GDP (USD13.4b) in FY17.