Good news for Indian economy! Sharp improvement in indicators witnessing a positive trend: Bernstein macro index

Bernstein macro index showed a sharp improvement in indicators witnessing a positive trend with the proportion of positive indicators increasing from 8% in July to 50% in Oct (based on 65% of indicators reported for the month of Oct). This was mainly led by reduction in mix of indicators, which was trending negative (down from 85% in July to 35% in Oct).

Industrial indicators:

There has been an improvement in various indicators of manufacturing in Oct. IIP bounced back to positive territory in Sep while manufacturing PMI rose to 58.9 on Oct-19, the highest since 2008 implying strong expansion in manufacturing activity ahead. Service PMI too rebounded in Oct moving above 50 after 7 months. Eight core industries continue to improve on account of strength in coal production.

Consumption indicators:

While Auto wholesale volumes have been strong due to restocking, retail demand for 2Ws remains weak. Hero Moto, the largest 2W company, witnessed a decline in retail sales despite pent up demand, bullishness around personal mobility and expectation of entry level demand increasing. PVs and tractor demand are however strong. Festive demand has been strong for durables and kitchen appliances but the read beyond small ticket items suggests mixed trends. E-commerce sales were up 40% YoY this season (similar to FY20) but we expected a larger growth due to the expected shift from offline to online.

Other Indicators:

All indicators of external trade like port volumes, EXIM growth and rail volumes showed continued revival with YoY declines moderating. While exports contracted 5.4% compared to growth of 6% in Sep, imports declined 11.6% compared to a decline of 20%+ in prior months. While non-oil exports posted positive growth of 6.5% in October, non-oil imports are hovering closer to pre-COVID levels (down 2.2% YoY). Power demand and Rail volumes, which were tracking at (-2%)/ (-5%) in July, improved significantly in October with growth tracking at +12%/+15% YoY. However, November data suggests some moderation in momentum, while diesel consumption is down 5% YoY, petrol is up only marginally. Momentum in power demand and rail volume decelerated marginally from Oct -12%/15% to 4.6%/9.6% respectively - until Nov 22nd. Bernstein believes some of the moderation could be due to the festive holiday season.

Govt and Banking:

GST collection at Rs 1.05 trn in Oct was the highest over the past 8 months. Govt spends however moderated in Sep with spending down 26% YoY compared to +5% in July. Overall Bank credit continued to show a decelerating trend on a MoM and YoY basis.

A rebound and not a cycle:

Bernstein believes that what they are witnessing in terms of macro improvement is more led by a catch-up in production and the build ahead of festive season. While consumption drivers may moderate a bit, Bernstein expects some other parts of the economy to witness normalization in the second half (Construction, real estate etc.) ensuring that macro data holds up, however all of this is low base impact and should not be read as the start of a new cycle or a strong cycle. GDP is moving from (-23%) in Q1 to modest growth in Q4 and what we see is only backing that estimate.