Steel’s performance shines in tepid core industry numbers

 Amid the disappointing performance of the index of core industries (ICI) in July 2017, at 2.4% year on year growth, the steel industry stands out with an outlier growth of 9.2%. In fact, steel has shown a robust growth of 10.9% on average in the past 12 months, which is far higher than average ICI growth of 3.6%.
Steel’s standout performance is even more notable in the context of a larger industrial slowdown. The index of industrial production (IIP) has averaged an even worse growth than ICI at 1.4% in the April-July 2017 period. Value added by the industrial economy is also equally bad, thanks to the cumulative effect of short-term factors like demonetisation and GST implementation as well as lack of conducive enough conditions to lift up industrial growth in the medium to long-term.

RBI’s curious optimism about growth prospects

In June of this year, the RBI revisited its inflation forecasts, revising them sharply downwards, amid many questions on their accuracy. It might have to do the same for its growth forecasts, though a small revision has been done already. As per its latest annual report, the bank expects GVA growth for 2017-18 to be at 7.3%, an acceleration from the previous year. With the Q1, 2017-18 growth number coming in at a mere 5.6%, staying flat from the previous quarter, the remaining three quarters are expected to achieve the herculean feat of carrying an average 8% growth.
That the Indian economy has been able to achieve growth north of 8% only in three quarters in the past five years or 20 quarters indicates the scale of the challenge. It is true that there are some factors that could swing India’s growth positively, foremost among which is the robust monsoon season, which bodes well for the Kharif crop as also provides some relief on the level in reservoirs, that can be used for irrigation subsequently. The optimism with respect to monsoons, is however dampened if we look at the trends for area under the Kharif crop. So far, sowing has lagged behind that during last year. Assuming that no dramatic productivity improvements have taken place in the last one year, the production per hectare will remain unchanged, which in turn indicates that agriculture production will remain relatively unchanged from last year. Added to this is the possibility of crop failure due to heavy recent rains in west India. 

India Macro Weekly: Economic activity paints mixed picture

For the fortnight ending July 22, 2017:

·         Real economic activity continued to look weak as per the latest Index of Industrial Production (IIP) release for May 2017, which puts growth at a meagre 1.7%, the slowest in three months. A decline in capital goods production as well as continued weakness in consumer durables’ production are responsible for the drag down, though majority of other segments have not performed well either.

·         The merchandise foreign trade report for June 2017 still giving room for optimism as both exports and imports continue to increase. Exports grew by 4.4% and imports by a far more robust 19%. Trade deficit, too, has come off its recent highs.

·         Inflation continues to surprise pleasantly, with that based on the Consumer Price Index (CPI) coming in at low of 1.5% in June 2017.  Food price deflation led the decline, though core inflation too, is coming off.

·         Inflation based on the Wholesale Price Index (WPI) also came off to 0.9% in June 2017 on account of primary articles’ deflation.

·         The House Price Index (HPI) release for Q4, 2016-17 came in at 10.5%. HPI inflation is now at a one and a half year high, which is in contrast with recent trends in consumer price inflations, but aligns with the continued rise in other financial markets, like equities.

·         The foreign tourist report continued to be healthy, posting over 20% growth rates for the April-June 2017 quarter for both tourist arrivals as well as earnings.

·         With respect to Agriwatch, the rains are normal for the seasons as a whole. The pace of Kharif sowing also slowed down in the past week, though coverage under cotton continued to be strong.

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Initiating India Investment Index (Beta)

Gross capital formation accounts for over 32% of India’s GDP, making it one of the key components of the Indian economy. In line with Orbis Economics’s practice of developing alternative quantitative measures to get a better understanding of the Indian economy, the beta version of the India Investment Index (Triple I) has been constructed, which is a single point indicator for a monthly perspective on the latest trends in capital formation. It is a weighted average of a host of economic indicators with strong explanatory power for GCF, available on both a non-seasonally adjusted as well as seasonally adjusted basis.

For regular readers of the India Macro Weekly, which covers our other two proprietary indices – the Exchange Rate Index and the Consumer Conditions Measure – the India Investment Index is constructed along the same principles. A value above 100 indicates that investment activity is on the upturn compared to that during the last one year and a value less than 100 indicates that investment activity has declined compared to the last one year. A value of 100 indicates that investment activity is static.

The latest numbers for the Triple I, for April 2017, show a divergence between the trends for the non-seasonally adjusted (nsa) and seasonally adjusted (sa) series. While Triple I, nsa, is at 96.3, a sharp decline compared to the 112.5 level during March 2017, the seasonally adjusted Triple I allows less room for disappointment as it has increased to 104.2 from 99.1 during the previous month. This indicates, that the decline is on account of seasonal factors than underlying weakness. The former series, though, remains significant since the quarterly GCF print is on an nsa basis. 

India investment index
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Economist's art on Modi's India

Unlike Modi covers in the past, which show his photographs, the latest Economist cover story on the PM has a a very interesting illustration. A careful look at it reveals much. 
For one, PM Modi has a distinct air of former PM Singh. From the tired expression to the relatively slight physique. Given the challenges that India presents at any point of time, it is perhaps unsurprising that the Economist detected something of Singh weariness in Modi. Barring of course, the possibility that their information was not updated for India PM and half way through illustrating they realised - oh damn, different guy! Unlikely, but a fun thought.