India's exports jumped 11.2% in September

Will this positive momentum be sustained?

According to DBS, strong Sep trade numbers confirm expectations of a significant improvement in the current account position in 2Q FY13/14 (Jul-Sep).

Sep exports rose 11.2%YoY, extended the strength witnessed in Jul and Aug’s receipts. Adjusted for seasonal effects, shipments have on a gradual mend, supported by tentative pick-up in demand from the overseas markets and possible boost to price competitiveness from rupee depreciation.

Here's more from DBS:

Sustained support from both these factors, however, cannot be counted upon in rest of the year.

The Eurozone’s climb back to health is likely to gradual, while the US growth outlook faces renewed headwinds from the debt ceiling and government shutdown impasse.

The ASEAN markets also face sub-trend domestic demand conditions, with a turnaround likely to be delayed to next year.

At the same time, the domestic exporting community will be unable to bank on the currency for long, as contracts are likely to be re-priced to factor in the benefits from a falling rupee. Imports on the other hand fell by sharp -18% YoY (vs +1.6% in Apr-Aug13), dragged by a decline in both oil and non-oil purchases.

The oil import bill eased on the back of moderation in global crude prices and rupee paring losses in the month. In addition to weak demand conditions, sharp fall in gold purchases likely weighed on non-oil imports. Gold volumes fell sharply on fresh restrictions and lack of clarity in the RBI trade regulations.

Overall, higher export receipts and simultaneous fall in imports saw the deficit narrow sharply to USD 6.7bn in Sep, lowest in nearly two and half years.

This spells good news for the annual current account outlook, increasing the likelihood that the deficit could fall below USD 80bn, which was our base case scenario.

We will revisit our current account estimates factoring in the notable improvement in the trade account, but balancing this off with the likelihood of seasonal rise in gold purchases this quarter and steady fuel/ coal/ iron ore purchases.

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