New Delhi

India's export sector is likely to face headwinds in FY27 due to slowing global demand and rising electronics imports, although the most difficult phase may have passed, according to a report by Elara Securities.

The brokerage believes that a weaker rupee, sustained growth in services exports and robust remittance inflows will help cushion the impact of external pressures on the economy.

Elara also noted that lower crude oil prices and easing freight rates in the months ahead could help bring India's import bill under control, thereby improving the country's trade position.

"India's export outlook is challenging for FY27, but the worst appears to be behind us," the report said. It added that declining energy prices and the likely moderation in shipping costs following the reopening of the Strait of Hormuz could bring monthly imports back towards a more manageable level of around USD 60 billion.

Despite uncertainties in global trade, India's external sector showed resilience in May. Overall exports climbed by nearly 16 per cent year-on-year, touching approximately USD 82 billion. This was supported by a record performance in merchandise exports, which rose 18 per cent to USD 45.2 billion.

However, imports expanded at a faster pace, increasing 20.6 per cent to USD 73.4 billion. As a result, the country's merchandise trade deficit widened to USD 28.2 billion, compared with USD 22.6 billion recorded in May last year.

According to the report, the depreciation of the rupee has begun improving India's competitiveness in global markets.

"Weaker rupee is helping India's goods trade," Elara observed, pointing out that merchandise exports reached an all-time high even as import levels remained elevated because of energy-related expenses.

The report further highlighted a changing pattern in India's export destinations amid global tariff disruptions. It said Indian exporters have increasingly diversified beyond the United States, reducing dependence on a single market.

"In May, India's merchandise exports to destinations excluding the United States were up 37 per cent compared with the pre-tariff period, while exports to the US grew by only 4 per cent," the report noted, using January 2025 as the benchmark.

Exports to the US have, in fact, declined by 13 per cent from their March 2025 peak, as American buyers had accelerated purchases earlier in anticipation of tariff measures.

On the current account front, Reserve Bank of India data showed that the country recorded a USD 4.7 billion surplus in April 2026. The surplus was aided by strong remittance inflows amounting to USD 16 billion, along with a services trade surplus of USD 18.6 billion.

Nevertheless, capital outflows, particularly those linked to foreign portfolio investors, kept the broader balance of payments under pressure.

The report identified rising electronics imports as a key area of concern. India's electronics trade deficit expanded sharply to USD 7.2 billion in May 2026 from USD 4.5 billion a year earlier. Electronics now account for nearly one-fourth of the country's overall merchandise trade deficit.

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Despite these challenges, Elara Securities expects India's external position to remain manageable. The brokerage believes that the nearly 10 per cent depreciation in the rupee over the past year, combined with resilient services exports and continued remittance inflows, should help contain current account pressures even as global demand remains subdued and electronics imports continue to rise.