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21st July 2016
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Economic
growth (The Total Investment & Insurance Solutions)
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There are signs of moderation in the
proprietary indices of Nomura that try to gauge India’s growth momentum and
near-term monetary policy path. Only one in five of Nomura’s indicators
accelerated in May (compared to April), down from three at the end of the March
quarter. According to their Composite Leading Index, non-agricultural GDP
growth is likely to moderate during the June quarter up to December 2016 due to
the lagged impact of tighter financial conditions. Nomura expects good
monsoons, Seventh Pay Commission pay hikes, higher government spending and
easier liquidity to support growth. However, impact of this will be realised
later on. Hence, GDP growth is expected to rise very gradually to 7.3% y-o-y in
2016 from 7.2% in 2015, before picking up to 7.7% in 2017, the report states. The Total Investment & Insurance
Solutions
According to a report from SBI’s
economic research department, credit growth continues to be a laggard. The
overall credit-deposit ratio is at 75.4% as on 8 July 16 from 75.8% a year ago
and 77.6% in 20 March 2016. Accordingly to the fortnightly data of all
scheduled and commercial banks, the credit off-take (YoY) recovered from the
historical low of 8.7% as on 10 June 2016 to 9.8% on 8 July 2016, compared to
last year growth of 8.9% in 10 July 2015. SBI expects a 13%-14% credit growth,
but mostly on the back of refinancing by banks on completed infrastructure
projects in sectors like power and roads, where there are no risks. But this is
likely to happen in the second half of current fiscal. The yearly SBI Composite
Index for July 2016 is showing an upward momentum and is at 51.0 (suggesting
low growth), compared to last month’s 48.9 (suggesting low decline). The
monthly composite index increased marginally to 50.9 in July 2016 from 50.6 in
June 2016. The Total Investment &
Insurance Solutions
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Credit
growth (The Total Investment & Insurance
Solutions)
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Diesel consumption, cellular
subscriptions, railway passenger traffic and airline freight have all slowed in
the June quarter. Investments and financial services have yet to show any signs
of recovery, mirroring stressed bank balance sheets, slow corporate
deleveraging and ample spare capacity in the manufacturing sector. Public
sector investments have yet to gain traction, tracking significantly below last
year’s levels on a three-month moving average basis. The Monthly Activity
Indicator, a weighted-average growth indicator, slowed to 6.8% y-o-y in May
from 7.8% in April and 8.1% at the end of March, indicating weaker growth
momentum in the June quarter. The Total
Investment & Insurance Solutions
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WAM (The Total Investment & Insurance Solutions)
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The Nomura Economic Surprise Index
rose to -0.07 in mid-July, from -0.20 in mid-June, indicating positive data
surprises relative to consensus expectations. The manufacturing PMI rebounded
in June, rising above its three-month trend, while industrial production for
May improved despite still being fairly weak. Rather than robust data, the
improvement was instead driven by a downward adjustment in consensus
expectations owing to past disappointments. The Total Investment & Insurance Solutions
The Nomura RBI Policy Signal Index
remains in the neutral (no rate change) zone due to elevated inflation and a
marginal improvement in external demand. In mid-July, the RBI Policy Signal
Index stood at -0.09 versus -0.11 in June. Historically, index values lower
than -0.2 have coincided with a rate cut, while values between -0.2 and +0.2
have corresponded to policy rates staying on hold. Hence, the Repo rate is
expected to be kept unchanged at the 9th August monetary policy review. Over
the past month, the benchmark 10-year G-Sec yield eased to 7.27% as on 21 July
from over 7.50% seen in June. The Total
Investment & Insurance Solutions
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