>EXPORTS REMAIN WEAK (MORGAN STANLEY)

• Exports (in dollar terms) continued the double-digit decline in April: Exports (in dollar terms) declined 33.2%YoY in April, largely at the same pace as the decline of 33.3%YoY registered in March. In our view, the high-base effect of last year (46.8%YoY in April 2008) also accentuated the slowdown trend in export numbers in YoY terms. In rupee terms, exports contracted 16.4%YoY, compared with -15.3%YoY in March. In other Asian countries, exports (in dollar terms) declined 24.3%YoY in April, compared with -22.7% in the previous month.

• Imports (in dollar terms) contracted further: Imports (in dollar terms) declined by 36.6% YoY in April, compared with -34% in March. In rupee terms, imports declined 20.6%YoY, compared with -16.2% in March. Oil imports (in dollar terms) declined further to -58.5%, compared with -58.1% in March, in line with the fall in crude oil prices. Non-oil imports (in dollar terms) also weakened further to -24.6% in April, compared with -18.9% in the previous month, on slowing domestic demand.

• Monthly trade deficit widened to US$5 billion (5.2% of GDP, annualized) in April: This compares with a US$4 billion deficit in the previous month. The YoY monthly trade deficit declined by 42.8% in April, compared with average growth of 41.4% in the previous 12 months. On a trailing 12-month basis, the trade deficit narrowed to 9.1% of GDP in April, compared with 9.4% in the previous month.

• Exports to improve on the margin: While we maintain our view that exports will remain weak over the next two to three months, due to the global slowdown, we expect the YoY decline to turn narrower from here (i.e., exports should still decline, but by a smaller extent). The second-order derivative for the US ISM New Orders Index (three-month moving average), which leads export growth by about four months (Exhibit on Slide 4), has improved for the fourth consecutive month (40.5 in April 2009 vs. 35.8 in March 2009, and 29.8 in February 2009). We believe imports will remain weak, due to slowing domestic demand and a lower oil import bill, helping the trade deficit to narrow further.

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