SBI Composite Index suggest some pick-up in economic momentum going forward

IIP growth for August 2015 may be 4.0% or more: SBI

The yearly SBI Composite Index for the month of August at 53.1 suggest some pick-up in economic momentum going forward. The upturn has been majorly driven by manufacturing, while mining and electricity are still acting as a drag on economic activity. Besides, the positive trends in capital goods sector further supports the favorable outlook.

One of the positive development is the order inflow of four major companies - BHEL, L&T, ABB and Thermax, which grew by 5.5% (y-o-y) in the Jun'15 quarter. The combined order book position of these companies stood at Rs 3.67 lakh crore. Furthermore, the Medium & Small companies in Capital Goods (Electrical & Non-Electrical Equipment) are making some in-roads in topline growth. Also, the recent quarter results (Q1FY16) reveal that the capital goods (electrical equipment) reported profit. Companies such as NBCC, KEC (International) and Thermax are sounding bullish on order book position in FY16 and FY17.

Looking ahead, it is expected that growth in order inflow in FY16 would be in the range of 15%-17% largely driven by state utilities. However, pricing pressure still persists in the system due to excess manufacturing capacity and lower opportunities. As the Government is taking steps in the right direction in terms of policy action, we believe that execution will pick up from H2 FY16.

The yearly SBI Composite Index for Aug' 2015 is showing traction with the index increasing to 53.1 (Moderate Growth) from 49.7 (Low Decline) in the previous month. The Monthly Index also improved, albeit with less magnitude to 52.2 (Moderate Growth) from 46.7 (Low Decline) in July 2015.

The upturn has been majorly driven by manufacturing, while mining and electricity are still acting as a drag on economic activity. Besides, the positive trends in capital goods sector suggest the possible pick-up in economic momentum.

IIP is also driven majorly by manufacturing (particularly capital goods) as revealed by higher ex-mining and ex-electricity growth. For August, growth may be 4.0% y-o-y or more.

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