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Currency, Economy, and India

Fundamentally stronger than others INDIA | INDONOMICS | Update

4 September 2015

Dollar‐rupee has weakened by almost 6% FYTD, 5% CYTD, and 9% yoy. Most of this weakness is led by capital outflows due to weaker economic performance, currency weakness of India’s trading partners (INR overvalued on REER — thus tepid intervention by RBI and the government to prevent weakness), and currency devaluation fears from emerging and commodity‐linked economies. In this note, we have analysed the impact of the rupee weakness and persisting global slack on the Indian economy in terms of currency, trade, GDP, and inflation.

Indian REER – Suggests more near‐term weakness We have changed our dollar‐rupee estimate for FY16/17 to 64.5/62‐63 (from 62/60 earlier) to incorporate recent weakness. We believe that a 3‐4% further weakening of the rupee is likely (67.50‐68.50). We continue to expect the dollar‐rupee to strengthen in the medium to long term (64‐65 by March 2016) due to strong Indian economic fundamentals (low inflation, CAD, and fiscal deficit), which should lead to capital flows returning to India (once the dust settles). Risks to our estimate include any global or country‐specific meltdowns and India’s economic under performance. We have also lowered our export and import growth assumption, adjusting for lower commodity prices and persisting global economic weakness, retaining our CAD estimate at 1.2% of GDP.

Exports revival – Global growth plays a more important role than currency weakness Based on statistical analysis of Indian exports with (Real Effective Exchange Rate) REER/dollar rupee and global GDP growth, we conclude that Indian exports are more dependent on global economic growth than on currency movements. Thus, until global economic growth revives, Indian exports growth should remain muted (for 1.5‐2.0 years).

Chinese devaluation could persist Chinese Yuan’s REER reflects that the currency is overvalued and could weaken further. China’s current REER is the highest since 1990 and its currency is the strongest since 1993 – the main reason why China’s exports are adversely affected (along with the global economic slowdown). Further weakness in the Yuan may keep other emerging market currencies under pressure, although with time, the pace may slacken.

Expect 25bps cut in the September policy Lower oil prices have more impact on the WPI than on the CPI. However, considering the sharp fall in international oil prices, both should see a reasonable positive impact. Assuming brent prices at US$ 60/barrel and the dollar‐rupee at 65, we expect average CPI at 4.5%‐5.0%, March 2016 exit inflation at 5.6% (lower than RBI’s target of 5.8%), and the bottom at 3.3%‐3.5% in August 2015 (data yet to come). We continue to anticipate a 25bps rate cut in September’s policy.

Lowered FY16/17 GDP estimates to 7.5%/8% to incorporate lower Q1 number After lower‐than‐expected Q1 GDP data, we cut our GDP estimate for FY16/FY17 to 7.5%/8.0% (from 7.8%/8.5%). FY16’s cut is largely due to poor kharif sowing (up only 1%) along with sub‐normal monsoon while the FY17 cut is due to weaker‐than‐expected pace of economic activity. However, private consumption and investments are showing gradual progress and government spending should trend higher in coming months. We estimate FY16 PFCE/GFCE/GFCF growth at 8%/8%/6%.

No risk to FY16 taxes, capital expenditure and fiscal target For FY16, we believe that the budgeted tax revenue target will be achieved, currently (FYTD) gross tax revenue growth is at 18% ‐ higher than the budgeted estimate of 15.8% for the full year. Assuming disinvestment is completed (as planned), we expect the government to spend the entire budgeted amount (unlike previous years when capital spending used to be cut in order to meet fiscal deficit targets) leading to higher capital spend as well as achievement of fiscal target of 3.9% in FY16.

Anjali Verma (+ 9122 6667 9969) [email protected]


INDONOMICS UPDATE

Currencies and India While the dollar‐rupee has weakened by almost 6% FYTD, it is down 5% CYTD, and 9% yoy. Most of this weakness is led by capital outflows due to weaker economic performance, currency weakness of India’s trading partners (overvalued on REER, thus tepid intervention by RBI and the government to prevent weakness), and currency devaluation fears from emerging and commodity‐linked economies. In this note, we have analysed the impact of the rupee weakness and persisting global slack on the Indian economy in terms of currency, trade, GDP, and inflation. We have changed our dollar‐rupee estimate for FY16/17 to 64.5/62‐63 (from 62 and 60 earlier) to incorporate recent weakness. We have also lowered our export and import growth assumptions adjusting for lower commodity prices and persisting global economic weakness, we are retaining our CAD estimate at 1.2% of GDP. We continue to expect the dollar‐rupee to strengthen in the medium to long term (64‐65 by March 2016) due to strong Indian economic fundamentals (low inflation, CAD, and fiscal deficit), which should lead to capital flows returning to India (once the dust settles). Risks to our estimate include any global or country‐specific meltdowns, continuing currency devaluation by emerging economies, and India’s economic under performance. As evident (below table), Indian Rupee has been one of the most stable currency amongst the emerging economies due to India’s strong economic fundamentals. Economies dependent on commodities have seen most of the currency depreciation and volatility. Currency movement vs. dollar (as on 2nd September 2015)

YoY CYTD Since Chinese devaluation (10th Aug)Brazil ‐39.3 ‐28.1 ‐7.1Malaysia ‐24.5 ‐16.9 ‐6.8Russia ‐44.1 ‐13.4 ‐6.0South Africa ‐20.1 ‐13.9 ‐5.9Turkey ‐26.1 ‐20.7 ‐5.5Australia ‐24.1 ‐13.9 ‐5.0Indonesia ‐17.1 ‐12.2 ‐4.4India ‐8.3 ‐4.8 ‐3.5China ‐3.3 ‐2.4 ‐2.3Philippines ‐5.2 ‐4.3 ‐2.2Korea ‐14.0 ‐7.6 ‐2.1Thailand ‐10.1 ‐8.0 ‐1.9Bloomberg commodity index ‐29.0 ‐14.8 ‐4.0

Source: Bloomberg, PhillipCapital India Research Bloomberg commodity index (yoy growth, %)

Source: Bloomberg, PhillipCapital India Research

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INDONOMICS UPDATE

Indian REER – Suggests more near‐term weakness The REER for the Indian rupee was 12% overvalued as on July 2015. Accounting for weakness in August 2015, dollar‐rupee is still 7‐8% overvalued. Thus, we believe that a 3‐4% further weakening of the rupee is likely. India’s average REER since 1994 is around 105. The graph below indicates that the REER at current levels is unsustainable. Therefore, considering the weakness of our trading partners, India’s currency should weaken further. However, once the currency, bonds, and equity contagion settles, we expect the dollar‐rupee to strengthen to 64‐65 levels (medium‐term), assuming FII flows return to the Indian debt and equity markets attracted by strong and improving economic fundamentals. We are revising our FY16 average dollar‐rupee assumption to 64‐65 (from 62) and our FY17 assumption to 62‐63 (from 60). REER and dollar‐rupee – shows more weakness likely

Source: RBI, Bloomberg, PhillipCapital India Research We had earlier expected the dollar‐rupee to trade at 60‐65 in FY16. Moreover, it did remain in this range despite the dollar strengthening and weakening of other emerging market currencies. However, the rupee finally gave in under the pressure of the recent Yuan devaluation. Both RBI and government have felt that the Indian rupee should weaken to 65‐68 levels in order to support exports, which have been dipping consistently – this explains their limited intervention to prevent the fall. 5 reasons for the change in our assumptions 1) India’s macro, corporate, and government performance is below expectations,

thereby impacting foreign capital flows. 2) Further crash in commodity prices reflects a sluggish global economic demand. 3) Yuan’s devaluation (and fear of more) is adding to pressure on emerging market

currencies. 4) The weak currencies of our trading partners imply that India’s currency is

overvalued — this depresses export competitiveness, hampering Indian exports 5) Due to these factors (uncompetitive exports and rupee overvaluation) RBI is not

very keen on intervention, resulting in more weakness. 5 reasons we expect the rupee to strengthen again 1) As Indian asset valuations become attractive, foreign flows should return to India

considering India’s relatively stronger economic fundamentals. 2) Economic fundamentals will remain stable to strong including contained

inflation, fiscal deficit, CAD, and improving GDP. 3) India has sufficient forex reserves of US$ 354bn as of August 2015. 4) Expectation of gradual fed rate hike. 5) Expectation of opening up of foreign debt investment limit in G‐Secs.

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INDONOMICS UPDATE

5 risks that our expectations face 1) Sharper global interest rate and liquidity tightness. 2) Sharper deviation in commodity prices. 3) An unprecedented global economic crisis. 4) A continued currency‐devaluation war within countries. 5) Pace of economic growth for India disappoints.

Currency weakness – Impact on the trade basket Dollar‐rupee has weakened by 6% so far in this financial year. Other emerging market currencies have also weakened (more than India) — thus, the fight for garnering exports share has intensified, pushing countries towards forced devaluation. Our analysis for India indicates that this route does not work well in reviving exports — global demand plays the biggest role. Global growth plays a more important role than currency weakness Based on statistical analysis of Indian exports (with REER/dollar rupee and global GDP growth) we see that exports have a significantly positive relationship with global economic growth and an insignificant relationship with currency movements (REER and dollar‐rupee). Thus, we believe that until global economic growth revives, exports growth for India will remain muted. IMF’s global GDP growth projection for 2015/16 is 3.3%/3.8% and it expects world‐trade‐volume growth in 2015/16 at 4.1%/4.4% – this implies muted pick‐up in 2016 as well. Thus, we expect exports growth for India to remain muted for 1.5‐2.0 years. Additionally, commodity prices are likely to remain contained in the next 1.5‐2.0 years leading to muted exports and imports in value terms for India. IMF’s country‐wise GDP and trade growth (%)

Projections Projections Countries 2013 2014 2015 2016 Countries 2013 2014 2015 2016World GDP 3.4 3.4 3.3 3.8 Emerging and Developing Europe 2.9 2.8 2.9 2.9Advanced Economies 1.4 1.8 2.1 2.4 Brazil 2.7 0.1 ‐1.5 0.7United States 2.2 2.4 2.5 3 Mexico 1.4 2.1 2.4 3Euro Area ‐0.4 0.8 1.5 1.7 Middle East, North Africa, Afghanistan, and Pakistan 2.4 2.7 2.6 3.8 Germany 0.2 1.6 1.6 1.7 Saudi Arabia 2.7 3.5 2.8 2.4 France 0.7 0.2 1.2 1.5 Sub‐Saharan Africa 5.2 5 4.4 5.1 Italy ‐1.7 ‐0.4 0.7 1.2 Nigeria 5.4 6.3 4.5 5 Spain ‐1.2 1.4 3.1 2.5 South Africa 2.2 1.5 2 2.1Japan 1.6 ‐0.1 0.8 1.2 World Trade Volume (goods and services) 3.3 3.2 4.1 4.4United Kingdom 1.7 2.9 2.4 2.2 Imports Canada 2 2.4 1.5 2.1 Advanced Economies 2.1 3.3 4.5 4.5Russia 1.3 0.6 ‐3.4 0.2 Emerging Market and Developing Economies 5.2 3.4 3.6 4.7China 7.7 7.4 6.8 6.3 India 6.9 7.3 7.5 7.5 Source: IMF, PhillipCapital India Research


INDONOMICS UPDATE

World GDP and trade volume growth (%) India’s exports movement closely linked to world GDP

India’s exports not highly correlated with rupee India’s exports volume growth dependent on global GDP movements (inverse) (tandem)

Exports volume index growth and dollar‐rupee growth – no positive relation

Source: IMF, RBI, Ministry of Commerce, Bloomberg, PhillipCapital India Research

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INDONOMICS UPDATE

India’s FY16 exports, imports growth in red While our CAD estimate for FY16 remains unchanged at 1.2% of GDP, we have adjusted exports and imports growth to account for lower fuel and other commodity prices. We anticipate a 6% fall in exports vs. +1.4% earlier and a 4% fall in imports vs. +0.6% earlier. FY16 is likely to be the second consecutive year of contraction for exports and the third consecutive one for imports — in fact, FY16 exports are likely to be the lowest since FY12. As evident in our FY16 forecast, exports weakness is sharper than earlier anticipated – because it is led by lower commodity prices as well as tepid global economic recovery. We have left invisibles and capital flows assumption unchanged. We do not expect rupee weakness to aid exports growth until (1) global economy revives and (2) Chinese excessive capacity and production is absorbed. India’s external account _____________USD Bn_____________ _______YoY growth_______ _____________% of GDP_____________ FY13 FY14 FY15 FY16E FY14 FY15 FY16E FY13 FY14 FY15 FY16EExports 306.6 318.6 316.7 298.0 3.9 ‐0.6 ‐5.9 16.5 17.0 15.5 13.6Imports 502.2 466.2 460.9 443.0 ‐7.2 ‐1.1 ‐3.9 27.0 24.8 22.6 20.2 Oil Imports 164.0 164.9 149.5 126.0 0.5 ‐9.3 ‐15.7 8.8 8.8 7.3 5.7 Non‐oil imports 338.2 301.3 311.4 317.0 ‐10.9 3.4 1.8 18.2 16.0 15.2 14.4Trade deficit ‐195.7 ‐147.6 ‐144.2 ‐145.0 ‐24.6 ‐2.3 0.6 ‐10.5 ‐7.9 5.7 5.4Net Invisibles 107.5 115.2 116.2 118.8 7.2 0.9 2.2 5.8 6.1 5.7 5.4 Software services 63.5 67.0 70.4 73.9 5.4 5.1 5.0 3.4 3.6 3.4 3.4 Remittances 64.0 65.3 65.5 66.9 1.9 0.4 2.0 3.4 3.5 3.2 3.0 Investment income ‐21.5 ‐23.5 ‐25.0 ‐21.0 9.6 6.2 ‐15.9 ‐1.2 ‐1.3 ‐1.2 ‐1.0Current Account Deficit ‐88.2 ‐32.4 ‐27.9 ‐26.2 ‐63.3 ‐13.8 ‐6.1 ‐4.7 ‐1.7 ‐1.4 ‐1.2Foreign investment 46.7 26.4 73.6 50.0 ‐43.5 178.8 ‐32.0 2.5 1.4 3.6 2.3 FDI 19.8 21.6 32.6 30.0 8.8 51.3 ‐8.1 1.1 1.1 1.6 1.4 FII 26.9 4.8 40.9 20.0 ‐82.1 748.9 ‐51.1 1.4 0.3 2.0 0.9External borrowing 31.1 7.8 3.4 10.5 ‐75.1 ‐55.8 205.6 1.7 0.4 0.2 0.5 ECB 8.5 11.8 2.7 8.0 38.8 ‐76.8 193.1 0.5 0.6 0.1 0.4 Short‐term trade credit 21.7 ‐5.0 ‐0.9 1.0 ‐123.3 ‐81.7 ‐208.3 1.2 ‐0.3 0.0 0.0Banking Capital 16.6 25.4 11.6 11.0 53.6 ‐54.3 ‐5.3 0.9 1.4 0.6 0.5 NRI deposits 14.8 38.9 14.1 15.0 162.0 ‐63.9 6.7 0.8 2.1 0.7 0.7Capital Account 89.3 48.8 90.0 65.5 ‐45.4 84.4 ‐27.2 4.8 2.6 4.4 3.0

Source: RBI, Ministry of Commerce, PhillipCapital India Research Current trade activity (FYTD: April‐July 2015 vs. last year)

April‐July 2015 vs. April‐July 2014Exports ‐15% vs. 6.5%Imports ‐12% vs. ‐3.7%Oil imports ‐38% vs. 6.4%Non‐oil imports 2.5% vs. ‐7.6%Non‐oil non‐gold imports 3.4% vs. 1.9%Import cover (months) 9.2 vs. 7.3

Source: Ministry of Commerce, PIB, PhillipCapital India Research


INDONOMICS UPDATE

Commodity‐wise exports and imports – Most exports contracting Within exports, 17 out of 21 sub‐segments are contracting (April to June 2015). The scenario has worsened since last year.

Sharp falling trend (in deep red) Falling (in Red) Showing improvement Commodity‐wise exports Agri and allied activities, Ores &

minerals (iron ore), Gems & jewellery, and Electronic items.

Leather & leather products, Plastic & rubber articles, Base metals (iron & steel), Machinery, Transport equipment, Textiles & textile products, and Crude petroleum & products.

Chemicals & chemical products (pharmaceuticals), and Paper & paper related products.

Country‐wise exports China, Japan, Russia, Most European countries, Most African countries, Latin America (Brazil), Singapore, Indonesia, UAE, Saudi Arabia, Iran, Bangladesh.

Europe, Africa, USA, Asia, Hong Kong, Germany.

Australia, Sri Lanka.

Commodity‐wise imports Ores & minerals, Gems & jewellery, Paper & related products, Transport equipment, Project goods, and Petroleum crude & products.

Leather & leather products (marginal) and Textiles (marginal).

Agriculture & allied activities, Chemicals (fertilizers), Plastic & rubber articles, Base metals (iron & steel), Electronic items, and Machinery (marginally higher).

Country‐wise imports France, Brazil, UAE, Saudi Arabia, Belgium, Nigeria, Brazil, Malaysia.

Europe, USA, Asia, Australia, Iran, China, Japan, Korea, Russia, Germany, Switzerland, Australia, Thailand, Japan, Korea.

UK, South Africa, Singapore, Indonesia, Hong Kong, Sri Lanka.

Flows – Strong except for FIIs FYTD FII flows are almost negligible vs. US$ 16.5bn same time last year. We expect flows to return to India due to (1) stable economic fundamentals, (2) attractive equity market valuations, (3) weaker currency, which will lead to currency gains once it strengthens, and (4) opening up of FII debt ceiling in government securities. Other flows remain strong (as highlighted below). We expect FII flows to improve gradually and other capital flows to remain strong. FDI: FYTD (April‐July) | FDI at US$ 8.8bn, up 11.5% yoy. NRI deposits: FYTD (April‐July) | US$ 5.8bn vs. US$ 2.4bn yoy (up 142%). ECB: FYTD flows at US$ 12.8bn, up 96% yoy. Forex reserves: FYTD US$ 12bn vs. US$ 19bn yoy. Dollar‐rupee responds to capital flows

Source: RBI, Bloomberg, PhillipCapital India Research

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INDONOMICS UPDATE

China: More Yuan devaluation seems necessary Chinese Yuan’s REER reflects that the currency is overvalued and could weaken further. China’s current REER is the highest since 1990 and its currency is the strongest since 1993 – the main reason why China’s exports are adversely affected (along with the global economic slowdown). Further weakness in the Yuan may keep other emerging market currencies under pressure, although with time, the pace may slacken. China REER and Yuan‐dollar China’s exports growth (3mma, yoy, %)

Source: World Bank, CEIC, PhillipCapital India Research

Trade: China and India India’s trade deficit with China has been rising despite the rupee’s weakness. This implies that Yuan weakness will add further imports to India. However, the Yuan’s weakness will displace imports from other countries and/or domestic production — to that extent, it is negative for India’s domestic industries where imports from China are large (including electrical machinery, nuclear reactors, organic chemicals, fertilizers, iron, and steel). Weakening INR against Yuan Widening trade deficit with China

Source: Bloomberg, CEIC, Ministry of Commerce, PhillipCapital India Research

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INDONOMICS UPDATE

What we import from China • Electrical machinery, nuclear reactors, organic chemicals, fertilizers, iron, and

steel • 50% of India’s electrical machinery imports are from China • 32% of India’s boiler imports are from China • 35% of India’s organic chemical imports are from China

India’s Commodity‐wise imports from China (% of total India’s country‐wise imports of electrical machinery China M to India)

Source: CEIC, PhillipCapital India Research India’s country‐wise import of boilers India’s country‐wise import of organic chemicals

Source: CEIC, PhillipCapital India Research

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INDONOMICS UPDATE

China’s trade and trading partners China’s bigger trading (export) partners are – USA (17%), Hong Kong (15.5%), Japan (6.4%), and South Korea (4.3%). China’s export to India is miniscule as compared to other countries. China country‐wise exports (% of total exports) China commodity‐wise exports (% of total exports)

Source: CEIC, PhillipCapital India Research Break‐up of China’s exports of mechanical and electrical products

Source: CEIC, PhillipCapital India Research

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INDONOMICS UPDATE

India GDP – Growth pace lagging behind After lower‐than‐expected Q1 GDP data, we cut our GDP estimate for FY16/FY17 to 7.5%/8.0%. FY16’s cut is largely due to poor kharif sowing (up only 1%) along with sub‐normal monsoon while the FY17 cut is due to weaker‐than‐expected pace of economic activity. However, private consumption and investments are showing gradual progress and government spending should trend higher in coming months. We estimate FY16 PFCE/GFCE/GFCF growth at 8%/8%/6%. Currently, rainfall is 12% below normal (cumulatively) and sowing is 1% higher than last year. As compared to last year, pulses sowing has shot up – positive for containing inflation; cereals and sugarcane have recorded 3.3%‐3.5% growth. Rice sowing in muted (up 0.5% yoy) and cotton is significantly lower than last year (‐7% yoy). In our FY16 agri‐GDP estimate, we have assumed normal rabi crop and negligible growth in kharif output. Kharif crop sowing — June ‐ 21st August (mn hectares) Crop Area sown in

2015‐16 Area sown in

2014‐15 Normal area as on 21st August Yoy (%)

As compared to normal area (%)

Rice 33.4 33.2 38.8 0.5 ‐14.1Pulses 10.2 9.3 10.8 10.1 ‐5.7Coarse Cereals 16.8 16.2 20.2 3.3 ‐17.0Oilseeds 16.8 16.8 18.2 ‐0.1 ‐7.7Sugarcane 4.9 4.7 4.8 3.5 1.0Cotton 11.0 11.9 11.5 ‐7.2 ‐4.2Total 93.8 92.9 105.3 1.0 ‐10.9

Source: PIB, PhillipCapital India Research Quarterly real gross value added (by income) Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 FY16PCE FY17PCE

Agriculture 2.7 3.6 3.8 4.4 2.6 2.1 ‐1.1 ‐1.4 1.9 2.0 3.0Industry 5.9 4.2 5.5 5.5 8.1 7.2 3.8 7.2 6.4 7.0 7.5Mining and Quarrying 0.8 4.5 4.2 11.5 4.3 1.4 1.5 2.3 4.0 4.5 5.0Manufacturing 7.2 3.8 5.9 4.4 8.4 7.9 3.6 8.4 7.2 7.5 8.0Electricity, gas and water supply 2.8 6.5 3.9 5.9 10.1 8.7 8.7 4.2 3.2 6.0 7.0Services 8.9 9.7 8.3 5.6 8.4 10.2 11.1 8.0 8.6 8.9 9.4Construction 1.5 3.5 3.8 1.2 6.5 8.7 3.1 1.4 6.9 6.7 7.5Trade, hotels, Transport, & Communication 10.3 11.9 12.4 9.9 12.1 8.9 7.4 14.1 12.8 11.0 11.5Financing, Insurance, Real Estate& business services 7.7 11.9 5.7 5.5 9.3 13.5 13.3 10.2 8.9 9.0 9.5Public administration, defence, & other services 14.4 6.9 9.1 2.4 2.8 7.1 19.7 0.1 2.7 7.0 7.4GVA at Basic Price 7.2 7.5 6.6 5.3 7.4 8.4 6.8 6.1 7.1 7.4 8.0

Source: CSO, PhillipCapital India Research Quarterly real GDP (by expenditure)

___________YoY growth rate___________ ___________As % of GDP___________ Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16

Private Final Consumption Exp. 5.8 6.2 7.1 4.2 7.9 7.4 55.3 58.5 56.2 57.8 55.5 58.7Government Final Consumption Exp. ‐14.9 1.6 8.9 27.6 ‐7.9 1.2 9.6 12.1 13.2 10.4 8.2 11.4Gross Capital Formation 15.3 9.2 4.0 2.9 5.7 5.6 33.7 33.7 33.3 32.3 33.1 33.2Gross Fixed Capital Formation 16.0 8.7 3.8 2.4 4.1 4.9 30.7 30.4 30.3 29.6 29.7 29.8Change in Stock 5.5 4.9 4.4 0.2 4.9 5.0 1.6 1.7 1.6 1.4 1.5 1.6Valuables 12.9 26.2 8.9 20.3 43.6 19.4 1.4 1.6 1.4 1.3 1.9 1.8Exports of Good & Services 19.7 9.1 ‐2.0 ‐0.3 ‐8.2 ‐6.5 24.5 23.6 24.5 22.8 20.9 20.6Imports of Goods & Services 1.9 ‐3.6 1.1 2.8 ‐8.7 ‐5.4 25.0 24.9 26.9 24.3 21.2 22.0GDP 12.5 6.7 8.4 6.6 7.5 7.0 100.0 100.0 100.0 100.0 100.0 1000

Source: CSO, PhillipCapital India Research


INDONOMICS UPDATE

Impact on Indian inflation, interest rates Lower oil prices have more impact on the WPI than on the CPI. However, considering the sharp fall in international oil prices, both should see a reasonable positive impact this time. Every 1‐dollar fall in brent prices lead to a 6bps fall in India’s CPI. Assuming brent prices at US$ 60/barrel and the dollar‐rupee at 65, we expect average CPI at 4.5%‐5.0%, March 2016 exit inflation at 5.6% (lower than RBI’s target of 5.8%), and the bottom at 3.3%‐3.5% in August 2015. We continue to anticipate a 25bps rate cut in September’s policy. CPI trends and forecast (yoy, %)

Source: CSO, PhillipCapital India Research

No risk to FY16 taxes, capital expenditure and fiscal target For April‐July 2015, the fiscal deficit is significantly higher at 69% of the budgeted estimate (average fiscal deficit for the last six years in the same period is 49%) led by higher spending and lower taxes. There is significant rise in government spending – 34% of BE vs. last six‐year average of 29%. Encouraging part of the rise in spending is that it is also led by higher capital spending unlike previously. Plan capital expenditure is at 38% of BE vs. the last six‐year average of 23%. Receipts are at 18% of BE vs. average 19%. In July, we saw some improvement in service tax (impact of higher service tax rate) and customs duty while excise duty remained strong. FYTD, gross tax revenue growth was 18% — income tax growth contracted 4.6%, corporate tax growth was a muted 6%, while there was a strong growth/pick‐up in customs (+23%), excise (+80%) and service tax (+17%) collections. For FY16, we believe that the budgeted tax revenue target will be achieved, currently (FYTD) gross tax revenue growth is at 18% ‐ higher than the budgeted estimate of 15.8% for the full year. Assuming disinvestment is completed (as planned), we expect the government to spend the entire budgeted amount (unlike previous years when capital spending used to be cut in order to meet fiscal deficit targets) leading to higher capital spend as well as achievement of fiscal target of 3.9% in FY16.

2

3

4

5

6

7

8

9

10

11

12

Jan‐12

Apr‐12

Jul‐1

2

Oct‐12

Jan‐13

Apr‐13

Jul‐1

3

Oct‐13

Jan‐14

Apr‐14

Jul‐1

4

Oct‐14

Jan‐15

Apr‐15

Jul‐1

5

Oct‐15

Jan‐16


INDONOMICS UPDATE

Central government’s fiscal account (April‐July) for respective years (INR bn) 2007‐08 2008‐09 2009‐10 2010‐11 2011‐12 2012‐13 2013‐14 2014‐15 2015‐16 YoY MoMRevenue Receipts 953 1179 1054 2385 1372 1688 1762 1756 2090 19.0 48.0% of BE 19.6% 19.5% 17.1% 35.0% 17.4% 18.0% 16.7% 14.8% 18.3% Tax Revenue 799 1013 863 1128 1141 1428 1451 1469 1539 4.8 51.3% of BE 19.8% 20.0% 18.2% 21.1% 17.2% 18.5% 16.4% 15.0% 16.7% Non‐tax Revenue 154 166 191 1257 231 260 310 288 551 91.6 39.5% of BE 18.6% 17.3% 13.6% 84.9% 18.4% 15.8% 18.0% 13.5% 24.9% Non‐debt capital Receipts 34 9 13 33 93 40 44 34 69 103.7 122.8% of BE 7.8% 5.9% 24.5% 7.2% 16.8% 9.7% 6.6% 4.6% 8.6% Recovery of loans 10 9 13 21 81 27 35 33 35 7.7 153.5% of BE 66.5% 19.0% 31.1% 41.0% 54.0% 23.2% 32.5% 31.0% 32.7% Other Receipts 24 0 0 12 11 13 9 1 34 2670.5 97.9% of BE 5.7% 0.2% 0.0% 2.9% 2.9% 4.4% 1.7% 0.2% 4.9% Total Receipts 987 1187 1067 2418 1464 1729 1806 1790 2159 20.6 49.6% of BE 18.6% 19.2% 17.2% 33.2% 17.3% 17.7% 16.1% 14.2% 17.7% Non‐Plan Expenditure 1682 1587 1949 2229 2635 3233 3714 3719 4431 19.2 40.2% of BE 35.4% 31.3% 28.0% 30.3% 32.3% 33.3% 33.5% 30.5% 33.8% On Revenue Account 1281 1534 1811 1941 2346 2904 3319 3380 4087 20.9 41.7% of BE 33.4% 34.2% 29.3% 30.2% 32.0% 33.5% 33.4% 30.3% 33.9% of which interest payments 489 520 521 584 675 806 863 1186 1276 7.6 33.7% of BE 30.8% 27.3% 23.1% 23.5% 25.2% 25.2% 23.3% 27.8% 28.0% On Capital Account 402 53 137 288 289 329 395 338 344 1.6 24.8% of BE 43.7% 8.9% 17.9% 31.2% 35.0% 31.6% 33.8% 32.1% 32.4% of which loans disbursed 1 1 2 102 153 103 99 99 99 ‐0.3 0.1% of BE 11.6% 7.7% 18.6% 971.9% 3841.8% 1120.7% 2948.7% 1345.2% 956.8% Plan Expenditure 598 760 704 1098 1117 1140 1497 1320 1578 19.5 37.3% of BE 29.2% 31.2% 21.6% 29.4% 25.3% 21.9% 27.0% 23.0% 33.9% On Revenue Account 496 647 590 945 975 932 1216 1040 1062 2.1 26.6% of BE 28.4% 30.8% 21.2% 30.0% 26.8% 22.2% 27.4% 22.9% 32.2% On Capital Account 102 114 114 153 142 208 281 280 516 84.1 66.3% of BE 33.2% 33.8% 24.3% 26.5% 18.2% 20.7% 25.1% 23.1% 38.2% of which loans disbursed 33 35 27 54 44 40 59 76 104 36.3 32.6% of BE 49.9% 46.4% 24.1% 32.2% 26.0% 20.8% 30.1% 33.4% 45.0% Total Expenditure 2281 2347 2652 3327 3752 4373 5212 5039 6010 19.3 39.4% of BE 33.5% 31.3% 26.0% 30.0% 29.8% 29.3% 31.3% 28.1% 33.8% Fiscal Deficit 1294 1160 1586 909 2288 2645 3406 3279 3851 17.4 34.3% of BE 85.7% 87.0% 39.5% 23.8% 55.4% 51.5% 62.8% 61.2% 69.3% Revenue Deficit 824 1002 1348 501 1949 2147 2774 2664 3060 14.8 32.4% of BE 115.3% 181.6% 47.7% 18.1% 63.4% 61.3% 73.0% 70.4% 77.6% Primary Deficit 805 640 1064 325 1612 1838 2543 2063 2575 24.8 34.7% of BE ‐1000.0% ‐111.2% 60.6% 24.5% 111.3% 94.8% 148.0% 198.1% 258.7%

Source: CGA, PhillipCapital India Research Tax Revenue components Jul‐15, (Rs Bn) YoY Apr‐Jul'15 (Rs Bn) YoY Apr‐Jul'14 YoY FY16BE YoYGross tax revenue 900 18.7 3051 17.9 2589 5.5 14,495 15.8%Corporation tax 143 18.2 663 6.1 625 2.7 4,706 10.5%Income tax 169 ‐8.8 620 ‐4.6 649 14.3 3,274 17.5%Customs duty 192 26.3 664 23.2 539 ‐3.9 2,083 10.4%Excise duty 205 47.8 580 79.9 323 ‐4.5 2,298 23.9%Service tax 181 20.8 485 16.6 416 18.8 2,098 24.8%

Source: CGA, PhillipCapital India Research


INDONOMICS UPDATE

Monthly macro‐economic data Growth Rates (%) Jun‐14 Jul‐14 Aug‐14 Sep‐14 Oct‐14 Nov‐14 Dec‐14 Jan‐15 Feb‐15 Mar‐15 Apr‐15 May‐15 Jun‐15 Jul‐15IIP 4.3 0.9 0.5 2.6 ‐2.7 5.2 3.6 2.8 4.8 2.5 3.4 2.5 3.8 ‐PMI 51.5 53.0 52.4 51.0 51.6 53.3 54.5 52.9 51.2 52.1 51.3 52.6 51.3 52.7Core sector 8.7 4.1 5.8 1.9 6.3 6.7 2.4 1.8 1.4 ‐0.1 ‐0.4 4.4 3.0 1.1WPI 5.7 5.4 3.9 2.4 1.7 ‐0.2 ‐0.5 ‐0.9 ‐2.1 ‐2.3 ‐2.4 ‐2.4 ‐2.4 ‐4.1CPI 7.5 8.0 7.7 6.5 5.5 4.4 5.0 5.2 5.4 5.3 4.9 5.0 5.4 3.8Money Supply 12.2 12.7 13.0 12.7 12.0 11.4 10.2 11.5 11.4 11.3 11.5 11.0 11.7 11.3Deposit 12.2 12.7 13.2 13.0 12.4 12.2 10.6 11.9 11.8 11.6 11.8 12.3 11.7 11.7Credit 12.8 12.8 10.4 9.2 10.6 10.5 10.4 10.2 9.9 10.2 12.6 10.5 9.8 9.4Exports 10.2 ‐0.2 2.4 2.7 ‐5.0 7.3 ‐3.8 ‐11.2 ‐15.0 ‐21.1 ‐14.0 ‐20.2 ‐15.8 ‐10.3Imports 8.3 4.5 2.1 26.0 3.6 26.8 ‐4.8 ‐11.4 ‐15.7 ‐13.4 ‐7.5 ‐16.5 ‐13.4 ‐10.3Trade deficit (USD Bn) ‐11.8 ‐14.3 ‐10.8 ‐14.2 ‐13.4 ‐16.9 ‐9.4 ‐8.3 ‐6.8 ‐11.8 ‐11.0 ‐10.4 ‐10.8 ‐12.8Net FDI (USD Bn) 2.1 3.6 2.5 2.9 2.8 1.8 4.0 4.7 3.8 2.7 3.3 3.8 1.7 0.0FII (USD Bn) 4.8 5.4 2.1 2.4 1.7 4.8 ‐0.4 6.6 3.8 2.0 3.1 ‐2.8 ‐2.8 ‐2.0ECB (USD Bn) 1.9 3.7 0.5 3.2 2.8 3.5 0.6 2.6 2.3 2.7 7.3 2.4 2.4 3.2Dollar‐Rupee 60.2 60.1 60.9 61.8 61.4 62.0 63.0 61.9 61.8 62.5 63.4 63.8 63.8 63.7Foreign Exchange Reserves (USD Bn) 315.8 320.6 318.6 314.2 315.9 316.3 319.7 327.9 338.1 341.4 344.6 352.5 355.2 353.3

Source: RBI, CSO, Ministry of Commerce, Bloomberg, PhillipCapital India Research Commodity‐wise exports of India __________USD bn__________ __________Weights__________ ________YoY________

COMMODITY‐WISE Apr‐Jun

2012Apr‐Jun

2013Apr‐Jun 2014(P)

Apr‐Jun 2015(P)

Apr‐Jun 2012

Apr‐Jun 2013

Apr‐Jun 2014(P)

Apr‐Jun 2015(P)

Apr‐Jun 2013

Apr‐Jun 2014(P)

Apr‐Jun 2015(P)

1. PLANTATION 0.4 0.4 0.4 0.4 0.6 0.5 0.5 0.6 ‐11.1 ‐2.8 ‐0.82. AGRI & ALLIED PRODUCTS 9.0 8.4 7.9 6.1 12.2 11.4 10.0 9.2 ‐6.2 ‐5.9 ‐22.73. MARINE PRODUCTS 0.7 0.9 1.2 1.0 0.9 1.2 1.5 1.5 28.1 35.4 ‐15.64. ORES & MINERALS 1.4 0.8 0.7 0.5 1.9 1.1 0.9 0.7 ‐40.2 ‐12.2 ‐38.55. LEATHER & LEATHER MANUFACTURES 1.2 1.3 1.5 1.4 1.6 1.7 2.0 2.2 9.9 21.3 ‐6.16. GEMS & JEWELLERY 10.8 10.4 10.2 9.7 14.7 14.2 12.8 14.6 ‐3.7 ‐2.6 ‐4.47. SPORTS GOODS 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1 1.2 56.7 ‐25.68. CHEMICALS & RELATED PRODUCTS 6.7 7.4 7.9 8.0 9.2 10.1 10.0 12.0 9.5 7.0 1.49. PLASTIC & RUBBER ARTICLES 1.4 1.6 1.8 1.5 2.0 2.1 2.2 2.3 8.8 13.3 ‐13.310. ARTICLES OF STONE, PLASTER, CEMENT, ASBESTOS, MICA OR SIMILAR MATERIALS; CERAMIC PRODUCTS; GLASS AND GLASSWARE 0.8 0.9 1.0 1.0 1.1 1.2 1.3 1.5 5.4 21.2 ‐1.311. PAPER & RELATED PRODUCTS 0.5 0.5 0.5 0.6 0.6 0.7 0.7 0.9 9.4 5.5 10.812. BASE METALS 5.0 4.6 5.4 5.1 6.7 6.3 6.9 7.6 ‐7.4 18.1 ‐6.9 ‐ IRON AND STEEL 1.8 1.9 2.2 1.6 2.5 2.6 2.8 2.3 5.5 12.8 ‐28.813. OPTICAL, MEDICAL & SURGICAL INSTRUMENTS 0.4 0.4 0.4 0.4 0.5 0.5 0.5 0.6 3.1 3.8 ‐3.714. ELECTRONICS ITEMS 2.1 1.8 1.6 1.3 2.8 2.4 2.0 2.0 ‐12.8 ‐13.4 ‐13.315. MACHINERY 4.1 4.1 4.8 4.7 5.6 5.5 6.1 7.0 ‐1.3 18.7 ‐3.316. OFFICE EQUIPMENT 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ‐43.9 2.7 180.417. TRANSPORT EQUIPMENT 5.6 5.1 6.8 6.3 7.7 6.9 8.6 9.4 ‐10.3 33.8 ‐7.318. PROJECT GOODS 0.1 0.0 0.0 0.0 0.1 0.0 0.0 0.0 ‐96.3 122.2 47.919. TEXTILES & ALLIED PRODUCTS 8.0 8.2 9.3 9.1 10.9 11.1 11.8 13.7 1.7 13.7 ‐1.820. PETROLEUM CRUDE & PRODUCTS 13.3 14.2 16.3 8.2 18.0 19.3 20.6 12.3 7.0 14.8 ‐49.621. OTHERS 2.0 2.6 1.3 1.2 2.7 3.5 1.6 1.9 28.5 ‐50.6 ‐2.7Total 73.5 73.4 79.1 66.7 100.0 100.0 100.0 100.0 ‐0.1 7.7 ‐15.7

Source: Ministry of Commerce, PhillipCapital India Research


INDONOMICS UPDATE

Country‐wise exports of India

______________USD bn______________ _____________Weights (%)_____________ _______YoY (%)_______

COUNTRY‐WISE Apr‐Jun

2012 Apr‐Jun

2013 Apr‐Jun 2014(P)

Apr‐Jun 2015(P)

Apr‐Jun 2012

Apr‐Jun 2013

Apr‐Jun 2014(P)

Apr‐Jun 2015(P)

Apr‐Jun 2013

Apr‐Jun 2014(P)

Apr‐Jun 2015(P)

Europe 13.0 13.2 13.8 12.6 17.7 18.1 17.4 18.8 1.1 4.9 ‐8.9 EU Countries 11.7 11.7 12.1 11.0 15.9 16.1 15.3 16.5 0.4 3.1 ‐8.9 UK 2.0 2.3 2.3 2.3 2.7 3.2 2.9 3.4 15.6 ‐0.5 ‐2.9 Netherland 2.2 1.4 1.4 1.1 2.9 2.0 1.8 1.6 ‐33.3 ‐1.8 ‐24.6 Germany 1.9 1.8 1.9 1.7 2.5 2.5 2.4 2.6 ‐4.9 8.6 ‐10.3 Belgium 1.3 1.4 1.5 1.3 1.8 2.0 1.9 1.9 9.8 2.3 ‐13.4 France 1.1 1.2 1.2 1.2 1.5 1.7 1.5 1.8 8.2 ‐4.5 4.1 Italy 1.0 1.4 1.3 1.0 1.4 1.9 1.6 1.5 35.4 ‐7.2 ‐17.7 Turkey 1.0 0.8 1.4 0.9 1.3 1.1 1.7 1.4 ‐19.4 75.1 ‐30.3Africa 6.9 6.4 8.7 6.5 9.3 8.8 11.0 9.8 ‐6.4 35.4 ‐25.1 South Africa 1.0 1.1 1.1 1.0 1.4 1.5 1.3 1.6 6.6 ‐1.3 ‐0.3 West Africa 1.6 1.6 1.7 1.3 2.1 2.2 2.1 1.9 1.4 5.4 ‐24.1 East Africa 2.0 1.7 3.2 2.1 2.8 2.4 4.0 3.1 ‐14.9 85.2 ‐34.9 North Africa 1.6 1.3 1.7 1.3 2.2 1.8 2.1 1.9 ‐20.3 27.6 ‐24.3America 13.7 13.0 14.7 13.6 18.7 17.9 18.6 20.4 ‐5.4 12.9 ‐7.3 North America 10.5 10.8 11.6 11.5 14.3 14.9 14.7 17.3 3.2 7.5 ‐0.9 USA 9.7 10.0 10.5 10.3 13.1 13.7 13.3 15.4 3.2 5.7 ‐2.2 Latin America 3.2 2.2 3.0 2.1 4.4 3.0 3.9 3.1 ‐33.1 40.2 ‐31.4 Brazil 1.5 0.9 1.7 0.9 2.0 1.2 2.2 1.3 ‐40.6 94.6 ‐48.6Asia 38.0 35.8 40.3 32.9 51.7 49.3 50.9 49.3 ‐5.9 12.6 ‐18.5 Asean 7.8 8.5 8.5 6.3 10.6 11.7 10.7 9.5 8.9 0.0 ‐25.2 Singapore 3.6 4.0 3.1 2.1 4.9 5.5 4.0 3.2 9.8 ‐21.1 ‐31.9 Indonesia 1.3 1.2 1.3 0.8 1.8 1.7 1.6 1.2 ‐6.7 1.3 ‐38.4Vietnam 0.8 0.9 1.3 0.9 1.1 1.2 1.6 1.4 8.4 46.1 ‐28.0Malaysia 0.9 1.1 1.4 1.2 1.3 1.4 1.8 1.9 11.7 36.7 ‐13.7Thailand 0.7 0.9 0.8 0.8 0.9 1.2 1.0 1.1 25.5 ‐10.3 ‐0.8West Asia 13.5 11.7 13.6 10.6 18.4 16.1 17.1 15.9 ‐13.3 15.6 ‐21.9 UAE 9.9 7.4 8.7 7.8 13.4 10.2 10.9 11.7 ‐24.9 17.0 ‐9.9 Saudi Arab 2.5 3.0 3.4 1.5 3.4 4.1 4.3 2.3 18.3 14.0 ‐55.3 Oman 0.6 0.6 0.8 0.4 0.8 0.8 1.0 0.6 ‐2.8 34.1 ‐45.8 Iran 0.7 1.2 1.1 0.7 1.0 1.7 1.4 1.1 73.2 ‐12.2 ‐32.3 Israel 0.9 0.8 0.9 0.8 1.2 1.1 1.1 1.1 ‐8.9 9.0 ‐12.0 North‐East Asia 9.7 8.6 9.4 8.1 13.1 11.9 11.9 12.1 ‐10.6 8.6 ‐14.1 Hong Kong 3.0 3.0 3.1 3.2 4.1 4.2 3.9 4.8 ‐0.1 1.7 2.9 China 3.8 2.4 3.0 2.4 5.2 3.4 3.8 3.6 ‐36.1 23.3 ‐20.2 Japan 1.2 1.7 1.6 1.2 1.6 2.3 2.0 1.8 40.6 ‐3.6 ‐26.2 Korea 0.9 1.0 1.2 0.9 1.2 1.4 1.5 1.4 15.5 16.7 ‐23.0 South Asia 3.7 3.4 5.0 4.8 5.0 4.7 6.3 7.2 ‐7.1 46.1 ‐3.1 Bangladesh 1.3 1.3 1.7 1.4 1.7 1.8 2.1 2.1 4.4 25.0 ‐15.5 Sri Lanka 1.0 0.8 1.5 1.8 1.4 1.0 1.9 2.7 ‐27.0 97.7 19.3Unspecified Region 1.0 3.4 0.8 0.6 1.4 4.7 1.0 0.9 228.5 ‐77.3 ‐27.2Total 73.5 72.6 79.1 66.7 100.0 100.0 100.0 100.0 ‐1.2 8.9 ‐15.7



INDONOMICS UPDATE

Commodity‐wise imports of India __________USD bn__________ __________Weights__________ ________YoY________

COMMODITY‐WISE Apr‐Jun

2012Apr‐Jun

2013Apr‐Jun 2014(P)

Apr‐Jun 2015(P)

Apr‐Jan 2012

Apr‐Jan 2013

Apr‐Jan 2014

Apr‐Jan 2015(P)

Apr‐Jan 2013

Apr‐Jan 2014

Apr‐Jan 2015(P)

1. PLANTATION 0.3 0.2 0.3 0.2 0.2 0.2 0.2 0.2 ‐22.5 22.4 ‐14.92. AGRI & ALLIED PRODUCTS 3.8 3.2 4.3 4.8 3.3 2.7 3.8 4.8 ‐14.8 34.3 9.63. MARINE PRODUCTS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ‐22.6 ‐13.9 28.04. ORES & MINERALS 7.0 6.5 6.5 6.2 6.0 5.4 5.7 6.2 ‐7.7 ‐0.2 ‐4.7 IRON ORE 0.2 0.0 0.0 0.2 0.1 0.0 0.0 0.2 ‐81.0 ‐44.6 1156.95. LEATHER & LEATHER MANUFACTURES 0.2 0.2 0.3 0.3 0.2 0.2 0.2 0.3 10.5 14.6 ‐2.26. GEMS & JEWELLERY 17.3 25.2 14.7 14.6 14.9 20.9 13.0 14.7 45.5 ‐41.8 ‐0.7 PEARL, PRECS, SEMIPRECS STONES 5.2 7.0 6.3 5.7 4.5 5.8 5.6 5.7 33.4 ‐9.3 ‐10.4 GOLD 9.1 16.3 7.0 7.5 7.8 13.5 6.2 7.6 78.3 ‐56.7 6.7 SILVER 0.4 1.8 1.1 1.0 0.4 1.5 1.0 1.0 303.8 ‐37.6 ‐12.27. SPORTS GOODS 0.0 0.1 0.0 0.0 0.0 0.0 0.0 0.0 8.6 ‐9.7 ‐2.08. CHEMICALS & RELATED PRODUCTS 8.4 8.6 9.6 9.9 7.2 7.1 8.4 10.0 1.5 11.7 3.99. PLASTIC & RUBBER ARTICLES 3.2 3.3 3.6 3.8 2.7 2.7 3.2 3.8 3.4 9.3 5.710. ARTICLES OF STONE, PLASTER, CEMENT, ASBESTOS, MICA OR SIMILAR MATERIALS; CERAMIC PRODUCTS; GLASS AND GLASSWARE 0.6 0.5 0.5 0.6 0.5 0.4 0.5 0.6 ‐11.7 0.2 12.611. PAPER & RELATED PRODUCTS 1.8 1.8 2.0 1.7 1.5 1.5 1.7 1.7 ‐0.4 10.2 ‐13.912. BASE METALS 7.0 5.7 6.1 6.3 6.0 4.8 5.4 6.4 ‐17.8 6.8 2.8 IRON AND STEEL 3.9 2.5 2.7 2.9 3.4 2.1 2.4 3.0 ‐35.9 8.0 7.713. OPTICAL, MEDICAL & SURGICAL INSTRUMENTS 1.0 1.1 1.1 1.0 0.9 0.9 0.9 1.0 1.8 ‐0.6 ‐3.514. ELECTRONICS ITEMS 8.0 8.1 8.3 9.2 6.8 6.7 7.3 9.3 2.2 2.1 11.115. MACHINERY 9.3 8.1 7.5 7.9 8.0 6.7 6.6 8.0 ‐13.0 ‐8.0 6.316. OFFICE EQUIPMENT 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ‐25.8 82.8 10.217. TRANSPORT EQUIPMENT 3.5 3.3 3.1 2.8 3.0 2.8 2.7 2.9 ‐5.2 ‐6.5 ‐9.0Total 2.1 1.2 0.9 0.9 1.8 1.0 0.8 0.9 ‐42.2 ‐28.0 0.2 Country‐wise imports of India ______________USD bn______________ _____________Weights (%)_____________ _______YoY (%)_______

COUNTRY‐WISE Apr‐Jun

2012 Apr‐Jun

2013 Apr‐Jun 2014(P)

Apr‐Jun 2015(P)

Apr‐Jan 2012

Apr‐Jan 2013

Apr‐Jan 2014

Apr‐Jan 2015(P)

Apr‐Jan 2013

Apr‐Jan 2014

Apr‐Jan 2015(P)

Europe 19.2 23.2 17.7 15.7 16.5 18.9 15.6 15.9 21.0 ‐23.9 ‐11.0 EU Countries 12.8 12.6 12.1 11.2 11.0 10.3 10.6 11.3 ‐1.8 ‐4.3 ‐7.5 UK 1.6 2.2 1.0 1.3 1.4 1.8 0.9 1.4 32.2 ‐54.2 34.5 Germany 3.4 3.1 3.0 3.0 2.9 2.5 2.6 3.0 ‐8.1 ‐2.9 ‐0.7 Belgium 2.6 2.6 3.2 2.4 2.3 2.1 2.8 2.5 ‐2.5 25.3 ‐24.3 EFTA 6.1 10.4 5.1 4.4 5.2 8.5 4.5 4.4 72.0 ‐51.1 ‐14.2 Switzerland 5.8 10.3 4.9 4.3 5.0 8.4 4.3 4.3 77.5 ‐52.3 ‐12.5Africa 9.5 10.7 10.3 9.3 8.2 8.7 9.1 9.4 11.7 ‐3.7 ‐9.1 South Africa 1.7 2.7 1.6 1.7 1.5 2.2 1.4 1.7 56.1 ‐41.9 9.5 West Africa 4.4 4.5 5.4 5.1 3.8 3.7 4.8 5.1 3.9 19.1 ‐5.9Nigeria 3.4 3.5 3.9 3.0 2.9 2.9 3.4 3.0 2.3 11.3 ‐23.6 North Africa 1.6 1.3 1.3 0.8 1.4 1.0 1.1 0.8 ‐18.7 ‐1.8 ‐36.0America 12.6 13.9 13.4 10.6 10.8 11.4 11.8 10.8 10.6 ‐3.6 ‐20.7 North America 7.5 7.4 6.8 6.4 6.4 6.0 6.0 6.5 ‐1.2 ‐8.6 ‐5.4 USA 6.1 5.9 5.2 5.1 5.2 4.8 4.6 5.2 ‐3.9 ‐10.8 ‐1.7 Latin America 5.1 6.5 6.6 4.2 4.4 5.3 5.9 4.3 27.9 2.0 ‐36.2Venezuela 2.3 3.3 3.0 1.7 1.9 2.7 2.6 1.7 45.8 ‐10.1 ‐43.3Asia 72.7 72.0 67.9 59.1 62.4 58.7 60.0 59.8 ‐1.0 ‐5.7 ‐12.9 East Asia 3.3 3.2 2.5 2.5 2.8 2.6 2.2 2.5 ‐1.5 ‐21.4 ‐3.4 Australia 3.1 3.0 2.3 2.2 2.6 2.5 2.0 2.3 ‐1.0 ‐23.7 ‐3.7 Asean 10.5 10.7 11.0 11.0 9.0 8.7 9.7 11.1 1.2 3.3 ‐0.4 Singapore 1.9 1.5 1.8 2.0 1.6 1.2 1.6 2.0 ‐20.5 19.1 12.2 Indonesia 3.7 3.8 3.6 3.9 3.2 3.1 3.2 4.0 3.5 ‐5.1 7.9 Malaysia 2.5 2.5 2.7 2.2 2.2 2.0 2.4 2.3 ‐1.7 8.8 ‐17.3 Thailand 1.4 1.2 1.4 1.5 1.2 1.0 1.3 1.5 ‐12.0 15.7 2.6 West Asia 27.5 27.5 24.4 15.8 23.6 22.5 21.6 16.0 0.3 ‐11.4 ‐35.2 UAE 9.9 9.3 6.6 5.3 8.5 7.6 5.8 5.3 ‐6.4 ‐29.0 ‐20.1Total 116.5 122.6 113.2 98.9 100.0 100.0 100.0 100.0 5.2 ‐7.6 ‐12.6



INDONOMICS UPDATE

Annual economic data and forecasts Indicators Units FY6 FY7 FY8 FY9 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17EReal GDP growth % 9.5 9.6 9.3 6.7 8.6 8.9 6.7 4.5 4.7 7.2 7.4 8.0 Agriculture % 5.1 4.2 5.8 0.1 0.8 8.6 5.0 1.4 4.7 0.2 2.0 3.0 Industry % 8.5 12.9 9.2 4.1 10.2 8.3 6.7 0.9 ‐0.1 6.6 7.0 7.5 Services % 11.1 10.1 10.3 9.4 10.0 9.2 7.1 6.2 6.0 9.4 8.9 9.4Real GDP Rs Bn 32531 35644 38966 41587 45161 49185 52475 54821 91698 98271 105543 113986Real GDP US$ Bn 733 787 967 908 953 1079 1096 1008 1517 1611 1624 1809Nominal GDP Rs Bn 36925 42937 49864 56301 64778 77841 90097 101133 113451 126538 139479 159079Nominal GDP US$ Bn 832 948 1237 1229 1367 1707 1881 1859 1876 2074 2146 2525Population Mn 1106 1122 1138 1154 1170 1186 1202 1219 1236 1254 1271 1302Per Capita Income US$ 753 845 1087 1065 1168 1439 1565 1525 1518 1655 1688 1940WPI (Average) % 4.5 6.6 4.7 8.1 3.8 9.6 8.7 7.4 6.0 2.0 ‐1.0 5‐6CPI (Average) 4.2 6.8 6.4 9.0 12.4 10.4 8.3 10.2 9.5 6.0 5.0 5.0Money Supply % 15.5 20.0 22.1 20.5 19.2 16.2 15.8 13.6 13.5 12.0 12.0 13.0CRR % 5.00 6.00 7.50 5.00 5.75 6.00 4.75 4.00 4.00 4.0 4.0 4.0Repo rate % 6.50 7.50 7.75 5.00 5.00 6.75 8.50 7.50 8.00 7.50 7.0 7.00Reverse repo rate % 5.50 6.00 6.00 3.50 3.50 5.75 7.50 6.50 7.00 6.50 6.0 6.0Bank Deposit growth % 24.0 23.8 22.4 19.9 17.2 15.9 13.5 14.4 14.6 11.4 12.0 13.5Bank Credit growth % 37.0 28.1 22.3 17.5 16.9 21.5 17.0 15.0 14.3 9.5 10.0 12.0Centre Fiscal Deficit Rs Bn 1464 1426 1437 3370 4140 3736 5160 5209 5245 5126 16181 5568Centre Fiscal Deficit % of GDP 4.0 3.3 2.9 6.0 6.4 4.8 5.7 5.2 4.6 4.1 3.9 3.5Gross Central Govt Borrowings Rs Bn 1310 1460 1681 2730 4510 4370 5098 5580 5641 5920 6349 6313Net Central Govt Borrowings Rs Bn 954 1104 1318 2336 3984 3254 4362 4674 4536 4469 4603 4566State Fiscal Deficit % of GDP 2.4 1.8 1.5 2.4 2.9 2.1 1.9 2.0 2.5 2.4 2.0 1.5Consolidated Fiscal Deficit % of GDP 6.4 5.1 4.4 8.4 9.3 6.9 7.6 6.9 7.1 6.6 5.9 5.0Exports US$ Bn 105.2 128.9 166.2 189.0 182.4 251.1 309.8 306.6 318.6 316.7 298.0 311.4YoY Growth % 23.4 22.6 28.9 13.7 ‐3.5 37.6 23.4 ‐1.0 3.9 ‐0.6 ‐5.9 4.5Imports US$ Bn 157.1 190.7 257.6 308.5 300.6 381.1 499.5 502.2 466.2 460.9 443.0 469.6YoY Growth % 32.1 21.4 35.1 19.7 ‐2.5 26.7 31.1 0.5 ‐7.2 ‐1.1 ‐3.9 6.0Trade Balance US$ Bn ‐51.9 ‐61.8 ‐91.5 ‐119.5 ‐118.2 ‐129.9 ‐189.8 ‐195.6 ‐147.6 ‐144.2 ‐145.0 ‐158.2Net Invisibles US$ Bn 42.0 52.2 75.7 91.6 80.0 84.6 111.6 107.5 115.2 116.2 118.8 123.5Current Account Deficit US$ Bn ‐9.9 ‐9.6 ‐15.7 ‐27.9 ‐38.2 ‐45.3 ‐78.2 ‐88.2 ‐32.4 ‐27.9 ‐26.2 ‐34.6CAD (% of GDP) % ‐1.2 ‐1.0 ‐1.3 ‐2.3 ‐2.8 ‐2.6 ‐4.2 ‐4.7 ‐1.7 ‐1.4 ‐1.2 ‐1.4Capital Account Balance US$ Bn 25.5 45.2 106.6 7.8 51.6 62.0 67.8 89.3 48.8 90.0 65.5 75.5Dollar‐Rupee (Average) 44.4 45.3 40.3 45.8 47.4 45.6 47.9 54.4 60.5 61.2 65.0 60.0

Source: RBI, CSO, Ministry of Commerce, Ministry of Agriculture, Bloomberg, PhillipCapital India Research


INDONOMICS UPDATE

Contact Information (Regional Member Companies)

SINGAPORE Phillip Securities Pte Ltd

250 North Bridge Road, #06‐00 Raffles City Tower, Singapore 179101

Tel : (65) 6533 6001 Fax: (65) 6535 3834 www.phillip.com.sg

MALAYSIA Phillip Capital Management Sdn Bhd B‐3‐6 Block B Level 3, Megan Avenue II,

No. 12, Jalan Yap Kwan Seng, 50450 Kuala Lumpur Tel (60) 3 2162 8841 Fax (60) 3 2166 5099

www.poems.com.my

HONG KONG Phillip Securities (HK) Ltd

11/F United Centre 95 Queensway Hong Kong Tel (852) 2277 6600 Fax: (852) 2868 5307

www.phillip.com.hk

JAPAN Phillip Securities Japan, Ltd

4‐2 Nihonbashi Kabutocho, Chuo‐ku Tokyo 103‐0026

Tel: (81) 3 3666 2101 Fax: (81) 3 3664 0141 www.phillip.co.jp

INDONESIA PT Phillip Securities Indonesia

ANZ Tower Level 23B, Jl Jend Sudirman Kav 33A, Jakarta 10220, Indonesia

Tel (62) 21 5790 0800 Fax: (62) 21 5790 0809 www.phillip.co.id

CHINA Phillip Financial Advisory (Shanghai) Co. Ltd.

No 550 Yan An East Road, Ocean Tower Unit 2318 Shanghai 200 001

Tel (86) 21 5169 9200 Fax: (86) 21 6351 2940 www.phillip.com.cn

THAILAND Phillip Securities (Thailand) Public Co. Ltd.

15th Floor, Vorawat Building, 849 Silom Road, Silom, Bangrak, Bangkok 10500 Thailand

Tel (66) 2 2268 0999 Fax: (66) 2 2268 0921 www.phillip.co.th

FRANCE King & Shaxson Capital Ltd.

3rd Floor, 35 Rue de la Bienfaisance 75008 Paris France

Tel (33) 1 4563 3100 Fax : (33) 1 4563 6017 www.kingandshaxson.com

UNITED KINGDOM King & Shaxson Ltd.

6th Floor, Candlewick House, 120 Cannon Street London, EC4N 6AS

Tel (44) 20 7929 5300 Fax: (44) 20 7283 6835 www.kingandshaxson.com

UNITED STATES Phillip Futures Inc.

141 W Jackson Blvd Ste 3050 The Chicago Board of Trade Building

Chicago, IL 60604 USA Tel (1) 312 356 9000 Fax: (1) 312 356 9005

AUSTRALIA PhillipCapital Australia

Level 37, 530 Collins Street Melbourne, Victoria 3000, Australia

Tel: (61) 3 9629 8380 Fax: (61) 3 9614 8309 www.phillipcapital.com.au

SRI LANKA Asha Phillip Securities Limited

Level 4, Millennium House, 46/58 Navam Mawatha, Colombo 2, Sri Lanka

Tel: (94) 11 2429 100 Fax: (94) 11 2429 199 www.ashaphillip.net/home.htm

INDIA PhillipCapital (India) Private Limited

No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400013 Tel: (9122) 2300 2999 Fax: (9122) 6667 9955 www.phillipcapital.in

Management(91 22) 2300 2999

Kinshuk Bharti Tiwari (Head – Institutional Equity) (91 22) 6667 9946(91 22) 6667 9735

Research Engineering, Capital Goods Midcap

Dhawal Doshi (9122) 6667 9769 Hrishikesh Bhagat (9122) 6667 9986 Amol Rao (9122) 6667 9952Nitesh Sharma, CFA (9122) 6667 9965

Portfolio StrategyAgri Inputs Infrastructure & IT Services Anindya Bhowmik (9122) 6667 9764Gauri Anand (9122) 6667 9943 Vibhor Singhal (9122) 6667 9949

Deepan Kapadia (9122) 6667 9992 TechnicalsBanking, NBFCs Subodh Gupta, CMT (9122) 6667 9762Manish Agarwalla (9122) 6667 9962 Logistics, Transportation & MidcapPradeep Agrawal (9122) 6667 9953 Vikram Suryavanshi (9122) 6667 9951 Production ManagerParesh Jain (9122) 6667 9948 Ganesh Deorukhkar (9122) 6667 9966

MetalsConsumer, Media, Telecom Dhawal Doshi (9122) 6667 9769 Database ManagerNaveen Kulkarni, CFA, FRM (9122) 6667 9947 Yash Doshi (9122) 6667 9987 Deepak Agarwal (9122) 6667 9944Jubil Jain (9122) 6667 9766Manoj Behera (9122) 6667 9973 Oil & Gas Editor

Sabri Hazarika (9122) 6667 9756 Roshan Sony 98199 72726CementVaibhav Agarwal (9122) 6667 9967 Pharma Sr. Manager – Equities Support

Surya Patra (9122) 6667 9768 Rosie Ferns (9122) 6667 9971Economics Mehul Sheth (9122) 6667 9996Anjali Verma (9122) 6667 9969

Sales & Distribution Ashvin Patil (9122) 6667 9991 Sales Trader Zarine Damania (9122) 6667 9976Shubhangi Agrawal (9122) 6667 9964 Dilesh Doshi (9122) 6667 9747 Kishor Binwal (9122) 6667 9989 Suniil Pandit (9122) 6667 9745Sidharth Agrawal (9122) 6667 9934 ExecutionBhavin Shah (9122) 6667 9974 Mayur Shah (9122) 6667 9945

Corporate Communications

Vineet Bhatnagar (Managing Director)

Jignesh Shah (Head – Equity Derivatives)

Automobiles


INDONOMICS UPDATE

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No

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No

3 Whether compensation has been received by PCIL or its associates from the company(ies) covered in the Research report No4 PCIL or its affiliates have managed or co‐managed in the previous twelve months a private or public offering of securities for the

company(ies) covered in the Research report No

5 Research Analyst, his associate, PCIL or its associates have received compensation for investment banking or merchant banking or brokerage services or for any other products or services from the company(ies) covered in the Research report, in the last twelve months

No

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Suitability and Risks: This research report is for informational purposes only and is not tailored to the specific investment objectives, financial situation or particular requirements of any individual recipient hereof. Certain securities may give rise to substantial risks and may not be suitable for certain investors. Each investor must make its own determination as to the appropriateness of any securities referred to in this research report based upon the legal, tax and accounting considerations applicable to such investor and its own investment objectives or strategy, its financial situation and its investing experience. The value of any security may be positively or adversely affected by changes in foreign exchange or interest rates, as well as by other financial, economic, or political factors. Past performance is not necessarily indicative of future performance or results.


INDONOMICS UPDATE

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