India's Export Outlook Challenging but Worst Phase Over: Elara Securities

India's export outlook remains challenging in FY27 amid moderating global demand and elevated electronics imports, but the worst phase appears to be behind as a weaker rupee, resilient services exports and strong remittance inflows are likely to cushion external sector pressures, according to a report by Elara Securities.

The report noted that softer crude oil prices and easing freight costs in the coming months could help normalise India's import bill, providing some relief to the country's trade balance.

"India's export outlook is challenging for FY27, but worst is over," Elara Securities said in its outlook, adding that "softness in crude oil prices, and potential moderation in freight costs due to opening of the Strait of Hormuz can normalize the import bill towards the run rate of USD 60bn per month."

India's external sector performance remained resilient in May despite global trade uncertainties. The country's overall exports rose around 16 per cent year-on-year to nearly USD 82 billion, driven by a record goods export figure of USD 45.2 billion, up 18 per cent from a year ago.

At the same time, imports increased 20.6 per cent year-on-year to USD 73.4 billion, widening the goods trade deficit to USD 28.2 billion from USD 22.6 billion in May 2025.

According to the report, the depreciation of the rupee has begun supporting India's export competitiveness. "Weaker Rupee helping India's goods trade," the report observed, highlighting that exports reached an all-time high even as imports remained elevated due to energy-related costs.

The report also pointed to a significant shift in India's export destinations following global tariff-related disruptions. It noted that India has successfully diversified its export markets, reducing dependence on the United States.

"In May India's goods exports to other countries, excluding the USA, were up by 37 per cent versus the pre-tariff period (Jan-25=100) compared with 4 per cent growth in exports to the US," the report said. Exports to the US have fallen 13 per cent from their March 2025 peak as American importers had advanced purchases ahead of tariff measures.

On the current account front, the Reserve Bank of India's balance of payments data showed a surplus of USD 4.7 billion in April 2026, supported by remittances of USD 16 billion and a services trade surplus of USD 18.6 billion. However, capital outflows, particularly foreign portfolio investment withdrawals, kept the overall balance of payments in deficit.

The report cautioned that rising electronics imports remain a concern. Electronics trade deficit surged to USD 7.2 billion in May 2026 from USD 4.5 billion a year earlier and now accounts for one-fourth of India's total goods trade deficit.

Elara Securities said gains from nearly 10 per cent rupee depreciation over the past year, along with continued strength in services exports and remittance inflows, are expected to limit pressure on the current account despite challenges from global demand conditions and rising electronics import costs.