India: Current account deficit widens to a better-than-expected 1.4% of GDP in Q4 – Nomura

Research Team at Nomura notes that India's current account deficit widened to a better-than-expected 1.4% of GDP in Q4 2016 from 0.6% in Q3 and the widening was due to two factors: higher imports and weaker remittances.

Key Quotes

“The capital account surplus halved due to large portfolio outflows, redemption of the FCNR(B) deposits and weaker growth-sensitive debt flows. Net FDI inflows moderated to a still-healthy USD9.8bn in Q4 from an abnormally high USD16.9bn in Q3.”

“With a larger current account deficit and a moderation of the capital account surplus, the overall balance of payments (BoP) swung to a deficit of USD1.2bn in Q4 from a surplus of USD8.5bn in Q3. We see the BoP deficit as a transitory phenomenon.”

“We expect India’s current account deficit to widen to 1.6% of GDP in 2017 from a deficit of 0.5% in 2016, as we expect the domestic recovery to further boost import growth, while rising protectionism could hurt invisibles inflows. However, with net FDI inflows at ~2% of GDP, the current account deficit remains within sustainable levels.”

“FX strategy: The BoP in Q4 2016 was affected largely by transitory factors; we maintain our medium-term bullish view on INR.”