After India’s goods exports, services exports now showing weakness : Nomura

TOKYO: The reduction in discretionary tech spending by companies in the US and other Western countries is starting to affect the services exports of India, accordingtoNomura

Growth of services exports has fallen to 0.7 percent year-on-year (YoY)inMay—whichisa28-month low — from 7.4 percent YoY growth in April and 26.7 percent YoY increaseinFY23.y

The brokerage’s analysts peg this to “weak external demand” spreading now to the services sector, after affecting demand in goodsexports.

“While an updated sectoral breakup of services exports is not yet available,datauptoQ42022indicated that the post-pandemic improvement inservicesexportswasdrivenmainly byITservices,butwasalsosupported by stronger professional & consulting services,”wrotetheanalysts.

“We believe the ongoing moderation reflects cutbacks in discretionary tech spending by Western firms in the BFSI (banking, financial services and insurance) and retail verticals,” they added.

According to Nomura’s analysts, the structural drivers of India’s services exports remain intact. The currentslowdownis“likelycyclical”.

They pointed to how it could affect thelocaleconomy.

“A slowdown in services exports could weaken urban consumption, as the IT sector is an important generator of employment. However, the balance of payments impact should be manageable, as services imports will also likely slow,” theywrote.

“We expect the services trade surplus to rise by 4 percent YoY in FY24 from 32.8 percent in FY23, butthecurrentaccountdeficittostill narrow to 1.4 percent of GDP from 1.8percentinFY23,”theyadded.

Good exports still remain in contractionary territory, but its de-growthhassloweddown.

“Merchandise export growth contracted by 10.3 percent YoY in May, improving from -12.5 percent in April, in line with our expectations,”wrotetheanalystsin anearlierreport.

The slowdown in oil exports deepened in May, but core exports improved to -4 percent YoY from9.2 percent in April, with sequential momentum picking up to 2.3 percent MoM (month-on-month, sa) from -1.2 percentinApril.

“Our proprietary indicator – the Nomura India Normalisation Index (NINI)fortrade,whichexcludesbase and seasonal effects – shows exports largely remained flat in May at 30 percent above pre-pandemic levels. Our price volume analysis suggests that on a 3-month rolling sum basis, both prices and volumes continue to contract, although a larger share of the under performanceincoreexportsisdriven byprices,”wrotetheanalysts.