Sluggish credit growth to major sectors and elevated interest rate has dragged the index downwards
State Bank of India (SBI) Composite Index, a leading indicator for tracking primarily manufacturing activity in Indian Economy, for Jan'15 inched up to 52.1 (moderate growth) from 50.6 (low growth) in Dec'14.In contrast, the Monthly Index has slipped from 55.4 (high growth) in Dec'14 to 51.5 (low growth) in Jan'15.
Increase in automotive sales, and benign inflation are the positive factors contributing to the index. However, sluggish credit growth to major sectors and elevated interest rate has dragged the index downwards.
Bank credit continues to remain sluggish and our internal model indicates there is typically a 2-6 month lagged impact on manufacturing activity from SBI credit portfolio. Interestingly, the impact is more pronounced in export intensive sectors, mining and automotive.
The SBI Composite Index is a leading indicator for manufacturing activity in Indian Economy aiming to foresee the periods of contraction and the expansion.
The Composite Index have mainly two indices namely SBI Monthly Composite Index and SBI Yearly Composite Index. Both the indices fulfill complementary purposes such as month on month sentiment movement vs. year on year growth forecast respectively. Both the components of the index are scaled from 0 to 100. Index above 50 implies growth over previous respective period and less than 50 will suggest a contraction over respective period.
The complementary nature of these indices help user to gauge the sentiments in the markets. 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.
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