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ECONOMICS UPDATE 17 JUN 2016

CAD: 4QFY16

Oil bounty to the fore

The tailwinds provided by falling crude prices were

on full display in the 4QFY16 CAD print. Despite the

fall in exports, remittances and software services,

CAD came in at a mere US$ 0.3bn, the lowest since

4QFY07. The jewellers strike also aided the print.

However, we expect the CAD to widen to 2% of the

GDP from the current sub-1.5% level on account of

increasing crude prices, normalisation of gold

imports and lack of revival in exports (merchandise

and services). A key takeaway was the contractionin BoP surplus (FY16 to US$ 17.9bn vs. US$ 61.4

YoY). This was a result of negative portfolio flows

(FY16 US$ -4.1bn vs. US$ +40.9bn YoY).

4QFY16 CAD shrunk to US$ -0.3bn vs. US$

-1.3bn YoY and US$ -7.1bn in the last quarter,

the lowest since 4QFY07.

The fall in CAD was on account of lower trade

deficit(US$ -24.8bn vs. US$ -31.7bn YoY and US$-34bn in the last quarter), which was a result of

lower oil imports (down 33% YoY) and gold

imports(down 38% YoY).

On the invisible side, net exports contracted 20%

to US$ 24.4bn vs. 30.4bn YoY. The stumble was

led by software services (US$ 17.3bn vs. US$

18.6bn YoY).

Net private transfers (remittances) at US$ 15bn

fell 10% YoYowing to the fall in crude prices.

On the BoP side, net FDI increased 11% YoY to

US$ 8.8bn and net FPI declined 116% to US$

-1.5bn, led by turbulent markets (Chinese RMB

depreciation in Jan, negative rates by BoJ, etc).

Overall, BoP surplus registered a fall for the

second quarter in a row. It stood at US$3.5bn vs.US$ 16.9bn YoY, a fall of 79% on YoY basis.

On annual basis, FY16 CAD contracted to 1.1% of

GDP (US$ 22.1bn) vs. 1.3% of GDP (US$ 27bn)

last year, led by the fall in oil imports (-40.1%),

which made up for the drop in exports (-15.9%),

the lowest since FY07.

Net invisibles fell 7.4% led by a fall in

remittances (-4.9%) owing to the feeble macros

of oil exporters.

On the BoP side, the surplus shrank by a

whopping 70.8% to US$ 17.9bn vs. US$ 61.4bn

YoY. The slide was triggered by net FPI, which

registered outflows amounting to US$ 4.1bn vs.

inflows of US$ 40.9bn.Romit Fernandesromit.fernandes@hdfcsec.com

+91-99301-24556

HDFC securities Institutional Research is also available on Bloomberg HSLB & Thomson Reuters

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ECONOMICS UPDATE: CAD

Quarterly Trends In Net Services Exports

Source: RBI

Quarterly Trends In CAD

Source: RBI

On the invisible side, net

exports contracted 20% to US$

24.4bn vs. 30.4bn YoY. The

stumble was led by software

services (US$ 17.3bn vs.

US$18.6bn YoY)

4QFY16 CAD shrunk to US$ -

0.3bn vs. US$-1.3bn YoY and US$ -7.1bn in

the last quarter, the lowest

since 4QFY07

14.9816.33 16.65 16.96 16.87

18.37 18.1219.61

16.99

18.9920.30

19.4117.75 17.84 18.01

16.08

-20.00%

-15.00%

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

-

5.00

10.00

15.00

20.00

25.00

1QFY13

2QFY13

3QFY13

4QFY13

1QFY14

2QFY14

3QFY14

4QFY14

1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

S ervices (USD bn) % YoY services - R HS

(16.93)

(20.98)

(31.86)

(18.08)

(21.77)

(5.15) (4.22)

(1.21)

(7.84)(10.15)

(8.26)

(1.29)

(6.12)(8.54)

(7.11)

(0.32)

-150.00%

-100.00%

-50.00%

0.00%

50.00%

100.00%

150.00%

(35.00)

(30.00)

(25.00)

(20.00)

(15.00)

(10.00)

(5.00)

-1QFY13

2QFY13

3QFY13

4QFY13

1QFY14

2QFY14

3QFY14

4QFY14

1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

CAD (USD Bn) %YoY CAD - RHS

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ECONOMICS UPDATE: CAD

Quaterly Trends In CAD And Net Foreign Inflows

Source: RBI

Annual Trends In Current Account Deficit

Source: RBI

Overall, BoP surplus registered

a fall for the second quarter in

a row. BoP surplus at US$ 3.5bn

vs. US$ 16.9bn YoY, a fall of

79% on YoY basis

FY16 CAD contracted to 1.1% of

GDP (US$ 22.1bn) vs. 1.3% of

GDP (US$ 27bn) last year led by

a fall in oil imports (-40.1%),

which adequately made up for

the fall in exports (-15.9%)

-4.8%

-1.7% -1.3%-1.1%

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

(100.0)

(80.0)

(60.0)

(40.0)

(20.0)

-

FY13 FY14 FY15 FY16

Current account defici t USD bn (LHS) CAD as %of GDP

1.9

15.911.9

17.0

6.30.3

8.510.2

20.317.7

13.5

22.1

10.2

3.2

11.3

7.3

(17)(21)

(32)

(18)(22)

(5) (4)(1)

(8) (10) (8)

(1.5)(6)

(9) (7)

(0.3)

(40.0)

(30.0)

(20.0)

(10.0)

-

10.0

20.0

30.0

1QFY13

2QFY13

3QFY13

4QFY13

1QFY14

2QFY14

3QFY14

4QFY14

1QFY15

2QFY15

3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

Foreign Flows (FDI+FPI) USD bn CAD USD bn

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ECONOMICS UPDATE: CAD

Snapshot Of BOP

In USD Bn FY13 FY14 FY15 FY16 %YoY

Exports 306.6 318.6 316.7 266.4 -15.9%

Imports 502.2 466.2 460.9 396.4 -14.0%

Oil 164.0 164.8 138.3 82.9 -40.1%

Gold 53.8 28.8 34.4 31.8 -7.6%

Non oil and gold 284.4 272.6 288.2 281.7 -2.2%

Merchandise Trade balance (195.7) (147.6) (144.2) (130.1) -9.8%

Software Exports 63.5 67.0 70.4 71.5 1.5%

Private transfers 64.4 65.3 66.0 62.7 -4.9%

Other invisibles (20.0) (17.0) (19.7) (26.2) 32.8%

Net Invisibles 107.8 115.3 116.7 108.0 -7.4%

Current account Balance (87.8) (32.4) (27.5) (22.1) -19.8%

Net FDI 19.8 21.6 32.6 36.0 10.4%

Net FPI 26.9 4.8 40.9 (4.1) -110.1%External Loans 31.1 7.8 3.4 (4.6) -234.9%

Other capital flows 11.5 14.6 13.0 13.9 7.0%

Total capital account 89.3 48.8 90.0 41.1 -54.3%

Overall BoP 3.8 15.5 61.4 17.9 -70.8%

GDP (USD Bn) 1,829.3 1,863.3 2,040.6 2,074.3 2%

CAD as %of GDP -4.8% -1.7% -1.3% -1.1%

Source: RBI

On the BoP side, surplus shrank

by a whopping 70.8% to US$

17.9bn vs. US$ 61.4bn YoY. The

slide was triggered by net FPI,

which registered outflows

amounting to US$ 4.1bn vs.

inflows of US$ 40.9bn

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ECONOMICS UPDATE: CAD

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