SBI Composite Index for January shows declining momentum

The SBI Composite Index, an indicator for tracking India's manufacturing activity, registered declining month-on-month momentum, amid sluggish credit growth and elevated interest rates.

The Monthly Index has slipped from 55.4 (high growth) in December 2014 to 51.5 (low growth) in January 2015.

On a year-on-year basis however, the index inched up to 52.1 in January (signalling moderate growth) from 50.6 (low growth) in December 2014.

The Index captures two components of the manufacturing cycle - month-on-month and year-on-year - growth on a scale of 0 to 100.

Index above 50 implies growth over previous respective period and less than 50 will suggest a contraction over respective period.

"Increase in automotive sales, and benign inflation are the positive factors contributing to the index. But, sluggish credit growth to major sectors and elevated interest rate has dragged the index downwards," SBI said in a research note.

The SBI Composite Index rivals the existing data point from British lender HSBC. It has been developed on the basis of the bank's internal loan portfolio, which mirrors the credit demand in the country, and other data sets available in public domain.

Commenting on the recent marginal pick up in bank credit growth, the report said that this is being driven to some extent by pick up in personal loans, primarily credit card outstanding.

"We believe that such increase may be attributed to the emergence of e-retail platforms, and it remains to be seen whether this augurs well for the revival in consumer sentiment," the report said.

An index value of less than 42 means large decline, while value of 42 to 46 means (moderate decline), 46 to 50 (low decline), 50 to 52 (low growth), 52 to 55 (moderate growth) and above 55 high growth, SBI said.