India's trade deficit worsened sharply in May, after improving in March due to seasonality. This likely explains why the rupee has been weak despite large portfolio inflows, says Nomura
“One of the puzzling trends in recent weeks has been a stable-to-weak US dollar and Indian rupee, despite large foreign institutional investor (FII) fund inflows. In our view, the reason lies in the seasonal pattern in the trade balance. After the positive surprise in the March trade deficit, which improved to a two-year low of $10.3 billion, we expect the trade deficit to worsen again in April to $15.5 billion and much more in May," says Nomura in a research note.
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