Manufacturing exports accelerate: 4 points to ponder

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Overall exports growth seems to be sedate because of a decline in petroleum and gem and jewellery exports. Reuters Overall exports growth seems to be sedate because of a decline in petroleum and gem and jewellery exports. Reuters
SummaryManufacturing exports growth is far stronger than the overall exports growth trajectory.

Manufacturing exports growth is far stronger than the overall exports growth trajectory and strengthened in 3QFY14, driven by textiles and chemicals. Overall exports growth seems to be sedate because of a decline in petroleum and gem and jewellery exports (both of which are largely re-export items). Stronger growth in manufacturing exports possibly reflects stronger global demand, improved Indian competitiveness and is positive for exim plays like Concor and GPPV (both rated BUY).

Manufacturing exports report double-digit growth over the past two quarters Recent data on exports of manufacturing goods (excluding gems and jewellery) shows strong double-digit growth in the previous two quarters (3QFY14 exports grew 17% yoy). The growth is led by (1) textiles (growth trend has been sustained and has steepened over the past four quarters), 2) chemical products (steady 5-10% growth over the past few quarters) and (3) engineering goods (has returned to growth after a weak 1QFY14). The growth trajectory of overall exports in 9MFY14, at 5.6%, is lower than that in adjusted manufactured exports (up 8% yoy) due to a decline in re-exports (gems and jewelry down 6% yoy).

Concor: Growing exports increases business opportunity Container Corporation is expected to benefit from growth in manufacturing exports, expanding the business opportunity for it. The business opportunity would expand for Concor on two fronts—(1) growth in trade volumes and thus volumes coming to ports and (2) reduction in exim imbalance and thus the potential for roads to take away share from container rail operators. We

note a correlation between manufacturing exports and port volumes though it is not 1:1 and the correlation appears to be slightly weak over the past few years.

Company-level examples suggest strong manufacturing export pick-up We note several instances of industrial companies citing strong growth in exports, helping them to sustain business in spite of a declining domestic market. (1) Cummins said OEMs for its industrial engines started exporting more and thus sustained demand for industrial engines in spite of a sharp decline in the domestic market, (2) TD Power and Triveni suggested strong export activity in terms of inquiries and orders and (3) Crompton cited strong opportunities in the Middle East/Africa where its is favorably placed versus MNC competition.

Imports: Consistent decline over the past 5-6 quarters mirrors trajectory of capital-goods imports Adjusting for petroleum and gold/precious stones, imports have been falling yoy over the past 5-6 quarters. This is due to broad-based weakness in categories (fertilizer, metals,

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