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Market Eye
| Indicators show economy's set to regain | 29/04/2009 07:03:01 | NEW DELHI: Growth ahoy! A number of leading indicators, project investment that
refuses to flag, a pick-up in hiring, freight movementat Countries in recession
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the major ports and
encouraging data from a number of key manufacturing segments indicate that the downturn has bottomed out and that the economy will regain its lost vigour shortly.
A leading indicator is a composite of a variety of indices that track activity in vital economic sectors. Nomura’s Composite Leading Index (CLI), UBS’ Lead Economic Indicator (LEI) and ABN Amro’ Purchasing Managers’ Index (PMI) indicate a pick up in growth soon. CMIE’s capex database, which tracks investment by companies, shows no significant slowdown in investment activity.
Strong performance of sectors such as auto, cement, steel, capital goods and port traffic along with record high telecom subscriber increases corroborate the strong turnaround thesis suggested by these lead indicators.
Following three successive months of climb, the LEI index for India now stands at 2.1, after hitting a low of negative 2.08 in December 2008. The LEI is a composite indicator of many variables, including government bond yields, M1 money supply, currency risk premium, foreign exchange reserves and stock market gains.
UBS’ economist Philip Wyatt expects the recovery to sustain because of the low levels of excess capacity, private sector indebtedness and non-performing loans in India. “With this significant rebound in LEI, we are more confident of a turning point in the industrial cycle by June 2009,” adds Mr Wyatt in a research report.
The CLI, used to identify the turning points in the growth rate cycle, rose in the first quarter of 2009 after four consecutive quarterly declines. Since the CLI indicates a turnaround in non-agricultural GDP growth rate with a two-quarter lead time, the pick-up in first quarter of 2009 suggests a recovery in economic activity from June onwards.
The PMI, an indicator of manufacturing activity in the country based on a survey of 500 companies, has improved from a low of 44 in December 2008 to 49.5 for March 2008. A reading below 50 indicates contraction.
That the PMI has recovered to nearly 50 suggests that manufacturing is now about to enter an expansion phase. The suggestion is that inventories have been run down, necessitating stepped-up production. The number of cars sold in March at 1,66,837 was 45% higher than the 1,15,334 sold in December 2008. Two-wheeler sales climbed 42% from 4,61,302 in December, to 6,54,017 in March.
The index of industrial production has inched its way to positive territory, even as capital goods production registered a growth of 10% in February.
CMIE’s capex database of new and ongoing investments in India indicates that both the rate of new investment project announcements and the pace at which projects are being commissioned remain robust. It says the downward revision of projected growth rate for the current fiscal by both the Bretton Wood institutions, the World Bank and IMF, is baseless. | Market
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