Thematic Report

India Strategy

by Mahesh Nandurkar / Nov 1, 2015

Our analysis of 40+ high-frequency economic indicators reveals that the economy bottomed out sometime in 1H15, and slow economic improvement is already evident.

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Several indicators have turned positive.

 Our analysis of 40+ high-frequency economic indicators reveals that the economy bottomed out sometime in 1H15, and slow economic improvement is already evident. The indicators that give us this confidence are industrial production, tax collections, coal & power demand, auto fuel demand, commercial vehicles sales, air passenger traffic and road construction activity. Several other indicators, including credit growth, property purchases, foreign trade and nominal GDP growth, continue to be lacklustre though. We still believe that a broader economic improvement requires capex revival, which in turn is dependent on a property market recovery – which is about 12 months away.

Indicators that are looking up

Of the 44 indicators that we track, some are outcome-based (ie, demand-driven); some are effort-based, such as government expenditure, which should drive demand; and some are expectations-based, eg the RBI’s business expectations survey.

We are encouraged by a surge in tax collections, industrial production (including power generation), auto demand and auto fuel consumption.

Festive-season demand (Sep-Nov period) for autos has proved to be good. The 3m moving average for both four-wheelers and two-wheelers has hit a high. However, we understand that taxi fleet operators such as Ola and Uber accounted for a large (30-50%) share of incremental demand for 4w over the past 12 months.

The pick-up in tax collections growth is not corroborated by the corporate profit growth reported by the listed universe – that continues to be lacklustre. Possible conclusions are that growth improvement is visible outside the listed universe, or tax compliance has risen.

Indicators that are worsening

Among the indicators that have worsened, we are more worried about non-oil, non-gold imports, which continue to fall. This is also reflected in the cargo handled at ports.

That nominal GDP growth for the September quarter fell to a 15-year low is also a worrying sign for corporate revenue growth.

It’s interesting to note that the negative indicators are largely value-based (and not volume-based) and hence as the YoY impact of price reductions begins to wane, these indicators will begin to look up.