Citigroup report says CAD in FY15 is estimated to touch $36.7 bn

India's current account deficit for the current financial year is expected to be $36.7 billion, or 1.8% of GDP, despite a fall in exports and rise in imports, says a Citigroup report.

 

"We maintain our view of FY15 CAD at $36.7 billion (1.8% of GDP), with risks balanced," Citigroup said in a research note today.

 

As per the global financial services major, the risks appears to be balanced. Sharp drop in oil prices helped in containing imports at $39.5 billion and this in turn helped in offseting weak exports.

 

Exports at $26.1 billion contracted for the first time in five months -- across petroleum products, engineering goods, gems and jewellery.

 

"While petro-products account for around 23% of total exports where crude prices have an impact, the slowdown in non-oil exports reflect global weakness and remains a concern," the report said.

 

The largest component in computing CAD is trade deficit. India's trade deficit widened to $13.35 billion in October as exports contracted 5.04% and gold imports surged.

 

Exports entered the negative zone after a gap of six months during October.

 

The report said that stable CAD and slowing inflation are likely to be INR supportive.

 

While there could be occasional bouts of emerging market volatility, the adequate reserves ($316 billion) and long forward position (more than $8.4 billion by end September) built by RBI is likely to help contain the volatility, the report said.

 

"We expect INR to remain anchored around its fair value of 60-62," Citigroup said.

 

The rupee is currently hovering around Rs 61/USD level.

 

According to Citigroup estimates, the FY15 average for crude is $100/bbl and if oil prices stay at current levels the net oil import bill would be lower by $4.5/bbl.

 

Exports on the other hand could be slightly weaker (FY15 growth assumed at 7.5%), given weak demand conditions in Europe and China which account for 28% of exports.