Exports may continue to grow if commex prices remain high

Manufacturing export sectors like textiles, auto & auto components, chemicals and gems & jewellery may maintain the recent pick-up this year too, if the commodity prices remain high, says a report.

"Better demand conditions in the West and the knock-on impact of higher commodity prices on emerging economies will result in higher export volume in fiscal 2018 for sectors like textiles, auto & auto components, chemicals and gems & jewellery," India Ratings said in a report today.

After falling for nearly two years, merchandise exports from the country revived in the past few months with March being the best with over 27 per cent growth. On of the main drivers of this growth has been recovery in global commodity prices.
 

Merchandise exports in USD terms rose for the seventh consecutive month in March by 27.6 per cent, helping the full year numbers to remain in the green territory with a growth of 4.7 per cent at at USD 274.64 billion as against a de-growth of 15.5 per cent in fiscal 2016 at USD 262.3 billion.

The March spike in shipments was led by both oil at 69.1 per cent as well as non-oil at 23.2 per cent exports and reflected the second consecutive month of double digit growth after a 17.5 per cent growth in February, said the report.

"Double-digit growth in merchandise exports in the last two months was driven by the recovery in global commodity prices rather than higher volumes," the report said.

The agency expects the inflationary impact of higher commodity prices to result in better demand conditions for manufacturing exporters.

The broad-based increase in commodity prices will also benefit nominal Ebitda generation and consequently credit profiles of exporters in commodity-linked sectors, it said.

While the report expects the demand recovery to continue, it warned that exporters will continue to face downside risks from protectionist policies in the US, a further slowdown in Chinese growth and will remain exposed to the effects of changes in commodity prices.

"Protectionist policies are expected to have a varied impact on exporting corporates with the service sector expected to be impacted to a greater degree," the report said.

The report further said lower revenue growth of IT exporters will get exacerbated by declining margins due to adverse immigration policies which will lead to higher employee costs.