HSBC sees CAD easing sharply in Q4, but full-year pressures to persist

CAD

India’s current account deficit (CAD) to settle near 2.7 percent of GDP in the December quarter, assuming a moderate goods trade deficit in December, HSBC Global Investment Research said in a report.

Seasonal trends could then lead to a sharp narrowing in the March quarter of FY26, potentially pulling the CAD down to around 0.4 percent of GDP, offering short-term relief after recent volatility in external balances, report added.

The near-term improvement follows a sharp correction in India’s merchandise trade deficit in November, which narrowed to $24.5 billion from a record $42 billion in October.

Economists at HSBC said October’s blowout was largely driven by festive distortions, with Diwali-related demand pushing up gold imports and factory holidays weighing on exports. These effects normalised in November, leading to a steep fall in gold imports and a rebound in exports, report said.

Gold imports declined sharply to about $4 billion in November, down nearly $11 billion from the previous month, accounting for a large part of the improvement in the trade balance. At the same time, non-oil exports rose 11.4 percent month-on-month, led by engineering goods, electronics and textiles. Pharmaceuticals, gems and jewellery, and leather exports also recovered after a weak October, report added.

The services trade surplus rose to about $17.9 billion in November, with services exports close to $36 billion, almost matching merchandise exports.

Looking beyond the near-term seasonal relief, HSBC warned that pressures on the current account are likely to persist over the full financial year. The bank expects India’s CAD to double to around 1.2 percent of GDP in FY26, compared with 0.6 percent in FY25.