Manufacturing growth is likely to remain flat and factory output may even continue to remain in the negative territory in the coming months, SBI said in a research report.
The yearly SBI Composite Index for October remained stationary at 50.2, compared to September. The monthly index declined marginally to 52.1 in October from 52.6 in September.
The SBI Composite Index, a leading indicator for manufacturing activity in Indian economy aims to foresee the periods of contraction and expansion.
An index 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). An index value of less than 42 large decline.
The Composite Index has mainly two indices namely SBI Monthly Composite Index and SBI Yearly Composite Index. 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.
“We believe in the coming months of September and October, the manufacturing growth is likely to remain flat and IIP growth may even continue to remain in the negative territory,” SBI Research said in its Ecowrap Report.
The report noted that credit off-take on a year-on-year basis continues to be a laggard and stood at 10.4 per cent in September 30, as per the fortnightly data of all scheduled commercial banks (ASCB).
“We expect that the credit cycle will turn for the better in a gradual manner,” the report noted.
The domestic financial services major expects a faster rate of MCLR transmission by banks in the coming days as inflation will rapidly decelerate to sub 3.5 per cent in November and RBI will cut rates.
“We even believe that inflation will materially stay below 4 per cent beginning October, possibly for 3-4 months,” the report said.