Oil Shocks Start To Reflect, Says Emkay Global

The trade deficit widened again to USD21.2bn, after briefly touching sub-USD18bn levels in Jan'22 - mainly due to the surge in oil and gold imports, even as non-oil non-gold (NONG) imports and exports slowed sequentially, Emkay Global has said in a report.

"Mar'22 will likely see the deficit widen further, led by higher crude and other (agri) commodity prices. lthough India's hydrocarbon dependence on Russia and non-oil trade terms are limited, the indirect price channel could cripple trade dynamics. With a higher-than-expected trade deficit in February and March, FY22E CAD/GDP could even shoot above 2%," Emkay has said in a report.

Deficit back to USD20bn+ levels as imports (led by oil) outdo exports

As per the prelim estimates, the Feb'22 merchandise trade deficit widened to USD21.2 bn vs. a deficit of USD17.4bn in Jan'22, according to Emkay Global.

"Momentum picked up in imports sequentially while exports weakened, leading to a sharper widening (21.6% MoM) in trade deficit. On an annualized basis, exports grew by 22.4% (25% in Jan'22), while imports grew by 35% (24% in Jan'22). Against Feb'20, exports and imports grew by 22% and 45%, respectively, implying that India's trade is comfortably above the pre-pandemic levels. For FYTD22, exports and imports continued to clock strong growth of 45% (USD371.9bn) and 60% (USD547.8bn) YoY, respectively," Emkay has said in a report.

Oil imports spike in Feb'22 while NONG weaken

Imports recorded strong gains in Feb'22 (35% vs. 24% in Jan'22) and continued to clock above USD50bn for the sixth-straight month (USD55bn). Sequentially, imports gained 5.9%, partly reversing the negative growth (-12.7% MoM) seen in Jan'22.

"Imports are now 45% above their pre-pandemic levels (20.5% 2-yr CAGR), indicating the extent of normalization. Growth in oil imports was sharp (67% YoY vs. 27% earlier) and the sequential pick-up remained strong at 25.8%, which almost reversed previous months' decline (-26%), led by price effect. Gold's sequential gains were sharp at 95% (-49% prior) even as it contracted on an annualized basis. Electronic goods imports have been healthy, consistently growing by 33% (2-yr CAGR), but weakened sequentially (-18%). NONG imports have seen steady growth at 34% YoY (19.4% 2-yr CAGR), but weakened sequentially (-6.1%). Annualized growth of NONG was led by electronic goods (29%) and machinery (13.5%)," the brokerage has said.