Axis Bank sees easing rupee pressure as foreign inflows return, despite a wider goods deficit

India's wider October merchandise trade deficit does not by itself point to a structural shock in the country's external accounts, according to an Axis Bank assessment. The bank says renewed foreign portfolio inflows and softer oil prices have eased pressure on the rupee in November. This is the bank's analysis of the outlook, not a guarantee of appreciation or a new exchange-rate target set by the Reserve Bank of India.

The goods deficit rose to about US$40 billion in October from roughly US$30 billion in September. Axis Bank attributes about half the US$10 billion monthly widening to an increased gold deficit, consistent with delayed festive demand, while judging gold imports still below historical trends. That month-to-month comparison is different from the sharp year-on-year decline in October gold imports; the two should not be confused.

Services receipts provide a buffer, in the bank's assessment

The bank reports November-to-date foreign portfolio inflows of US$9.6 billion and a twelve-month rolling average of forward crude prices near US$87 a barrel. Its report contrasts this with July–September pressure from outward investment, weaker net income and transfer receipts, and portfolio outflows, despite one-off inflows associated with foreign-currency non-resident deposits. The flow total is dated to the report, not a final November result.

Axis Bank expects the current-account deficit to remain near 1 percent of GDP in FY27. It cites a twelve-month cumulative invisibles surplus of US$332 billion, including US$226 billion in services, as a cushion against the goods gap. Invisibles include transactions beyond physical merchandise; a goods deficit is not the same measure as the current-account balance. The bank expects wider second- and third-quarter deficits to be partly offset by narrower first- and fourth-quarter gaps.

October exports rose about 45 percent, with petroleum products, engineering goods and electronics contributing. The report also points to firm non-oil, non-gold import demand and resilience in automobile and steel volumes earlier in the financial year. Its conclusion is conditional on flows, oil prices and services remaining supportive. A bank forecast of manageable external balances is not evidence that currency risk has disappeared or that every importer, exporter or investor faces the same outcome.