Export Surge not to Benefit All Export Sectors - India Ratings

Mumbai, December 2, 2013: India Ratings & Research (Ind-Ra) believes given the tentative nature of recovery in global demand, not all export oriented Indian corporates will benefit evenly. The key drivers of this asymmetric growth are divergent expectations of growth trends in developed markets and emerging markets, uncertainty with respect to quantitative easing (QE3) tapering and prices of precious metals.

Ind-Ra expects the tentative revival of global demand to benefit pharmaceutical companies the most, followed by textiles and IT companies. We expect India’s engineering exports’ growth to remain muted given the moderating growth of emerging markets. Also, gems & jewellery exporters are unlikely to benefit significantly due to the relatively lower prices of precious metals.        

Pharmaceuticals: Ind-Ra believes exports of pharmaceuticals from India will continue to witness fast-paced growth driven by patent expiries, higher healthcare spending and demand from new markets such as Europe and Japan.

Textiles: The tentative improvement in global consumption is likely to support Indian textile exports. After a 3.1% yoy decline (in US dollar terms) in FY13, exports of textile products increased 13.2% over April-September 2013 (April-September 2012: negative 8.9%). Most Indian textile exporters are running on full capacity and are outsourcing manufacturing on a job work basis as order books are growing ahead of the peak festive season (December). Incremental demand may be driven more by European consumption which has shown some growth from 3Q13. However, demand from the US is likely to be maintained at current levels.

IT: Certain indicators such as US tech job postings and the International Data Corporation’s Buyer Intent Index signal a positive trend for the demand of IT services and technology products. However, both these indicators have shown some moderation in the past four to six months.

While robust corporate performance in the US could create a case for an increase in IT budgets of corporates, the quantity of increase is likely to be moderate given the global economic uncertainty  Given the uncertainties related to QE tapering, corporates in developed markets may prefer to conserve cash rather than significantly ramping up their IT budgets.

Gems & Jewellery: Gems & jewellery exports declined 6.7% over April-September 2013 mainly on falling precious metal prices and recent regulatory changes by the government. These factors, along with continued forex volatility, will continue to impact exporters in this segment despite consumer demand being favourable.

(Source: Manager – Corporate Communications and Investor Relations, India Ratings & Research  A Fitch Group Company)