Indian businesses struggle to uphold their optimism

ZyFin Business Cycle Indicator for June 2015 registers a marginal dip

The Indian business cycle is showing a sign of weariness with industrial activity expected to dip marginally in June'15 compared to the previous month. However, it is unlikely that this moderate decline is an early indication of the economy losing steam. This trend is captured by Business Cycle Indicator (BCI) for June 2015, released today by ZyFin Research, a leading financial research and analytics company.

The BCI indicator, which is a lead index to the Index of Industrial Production (IIP), has registered a score of 9.5 in June'15 as against 10.6 in May'15. ZyFin Research expects the April IIP to expand compared to last year. However, the growth rate would not be more than 2%.

Giving his views on the number, Debopam Chaudhuri, Chief Economist, ZyFin Research, said, The Indian Business Cycle has been on a path to recovery, albeit shaky, since the past six months. The Business Cycle managed to trend up despite multiple challenges including slowdown among India's trade partners, volatile currency and reluctant international investors in the recent past.

BCI June 2015 comes at a time when India's economic prospects are strengthening, buoyed by easing inflation, softening interest rates, stable currency and improving fiscal deficits. Interestingly the Index was at 5.5 same times last year, and the current level indicates an overall recovery within the Indian business cycle over last year.

The Business Cycle Indicator is a forward looking composite indicator of the Indian business cycle with a one month lead on the Index of Industrial Production (IIP). A score of above 5 suggests a recovery phase in Indian business cycle and growth can be detected once the score exceeds 12. A score below 5 and declining is an indication of a slowing economy that reaches a recession once the score becomes negative. The current score is indicative of a recovery phase within Indian business cycle. Unless the indicator demonstrates a weak performance for three consecutive months, there is no reason to get alarmed regarding India's prospective economic growth.

The Index dipped marginally compared to last month primarily due to weak exports, especially that of agricultural commodities. Also, a decline in production of non-ferrous metals compared to previous data point contributed to this. However, when compared to the situation one year ago, there has been substantial recovery across various economic parameters including the government's revenue receipts, pick up in production of key metals, FDI as well as consumer spending on phones, cars as well as vacations. Also, market-oriented reforms initiated by the Central Government are gradually forming an impact on real economic trends with India's ease of doing business slated to improve significantly over the next couple of years.

Powered by Capital Market - Live News