MC Explains| October exports decline; should the markets be worried?

(Representative image: Reuters)

Indian exports fell 17% on year to $29.78 billion in October, the first decline in close to two years, data released on November 15 showed.
Imports in the same month increased by 5.7%, resulting in a trade deficit of $26.91 billion.

What led to the drop in exports and what are its implications for the markets? Moneycontrol explains.

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1) Why did exports fall in October?

Slowing global economic growth and geopolitical uncertainties following Russia's February invasion of Ukraine were two factors responsible for the drop.

Global central banks, too, have aggressively raised interest rates to contain inflation. High interest rates at a time inflation is high means less money in the hands of the people, and hence less demand for goods.

2) What were the other factors at play?

October also coincided with the month-long festive season in India with fewer working days, which meant less production, according to the commerce secretary. Export restrictions by the government on key items like wheat, steel, iron and petroleum products also contributed to the slowdown in exports.

3) Which segments fared poorly?

In October, only six export items --- electronic goods, tobacco, tea, rice, oil seeds and oil meals --- recorded growth. Overall exports were let down by some important commodities such as petroleum products, and engineering goods, chemicals, gems and jewellery. The key segment of non-petroleum, non-gems and jewellery exports, also known as core exports, dropped 20% to $26 billion in the month.

4) What does this mean for the stock markets?

In a connected world, no country can remain unscathed when major economies like the US and Europe are staring at a recession. Close to 13% of India's Gross Domestic Product (GDP) is driven by exports. One of the reasons the Indian market has been doing well is that the economy is in much better shape compared to the economies of the US, Europe and China.

Foreign institutional investors too have turned bullish on India for this reason. But the weakness in exports could temper the enthusiasm. When exports decline, the earnings of the companies that produce goods for overseas markets take a hit.

The stocks of export-oriented companies too will take a beating as investors will value them less as their earnings come under pressure. It will also have an impact on employment and wage trends, in turn affecting demand in the economy.

The World Trade Organization has estimated that global trade growth is likely to slow to 1% in 2023 from 3.5% in 2022. The Indian government too has warned of tough times ahead.

5) What about imports?

While imports grew 5.7%, compared with previous year, the pace of growth has slowed. Imports also saw a decline on a sequential basis (compared with previous September month), led by gems and jewellery, electronic goods, ores and minerals, transport equipment and some other goods. However, core imports continue to be strong, mainly driven by healthy festival demand in October.