SBI index crashes to all time low in December 2016

SBI index indicates at continuous negative IIP growth for December 2016

The yearly SBI Composite Index for December 2016 crashed to all time low of 45.5 (Moderate Decline), compared to last months revised index of 50 (Low Growth). Meanwhile, the Monthly Index increased to 49.4 (Low Decline) in December 2016 from 48.3 (Low Decline) in November 2016. As per the Index, the IIP growth may continue to remain in the negative territory in December 2016.

The SBI Composite Index, a leading indicator for manufacturing activity in Indian Economy aims to foresee the periods of contraction and expansion. The Composite Index has mainly two indices namely SBI Monthly Composite Index and SBI Yearly Composite Index. A consistent negative (positive) month on month forecast in the index will lead to negative (positive) growth rate in year on year index after a while.

The impact of demonetization on different sectors of industries is largely negative in the short term. Though as the situation improves, it will help them to grow smartly in the long run. Retail sales during the month of November 2016 were down in the range of 20-40% due to currency crunch and negative sentiments on account of uncertainty post Governments monetary initiative. Even the festive season shifted early by almost a month this time, which also resulted in lower sales during November due to post-festive sluggishness.

Overall, the SBI research department feel that the effect of demonetisation is more of short term nature, say a quarter or two in most of the sectors, except real estate, jewellery, luxury goods etc., and will normalize thereafter.

Due to weak credit off-take and huge money inflows, SBI research expect a faster rate of MCLR transmission by banks in the coming days as inflation trajectory is expected to remain benign with CPI inflation at sub-4% for coming months till January 2017. Though inflation may increase thereafter (post January 2017), it may not be more than 4.5% by March 2017.

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