Cyclical rebound in industrial activity reflect in India’s expected GDP growth

The signs of recovery are there.

Amid news of expected improvement in India’s 1Q FY15 GDP growth, it has been observed that the early signs of a cyclical rebound in industrial activity and investment-related sectors are likely to reflect in the numbers.

According to a research note from DBS, the Reserve Bank of India (RBI) industrial outlook survey bottomed out, with the overall business situation and order books expectations improving notably tor the Sep quarter.

At the same time, factory output and core industries activity have also witnessed a turnaround. Manufacturing activity rose 3.1% YoY in the Apr-Jun quarter, reversing from -1.0% in Jun13 quarter.

Here’s more from DBS:

Electricity generation was also up an impressive 11.4% In addition to coal, the core industries index accelerated on the back of shallower fall in natural gas and higher cement production.

Commercial vehicle sales had a strong run, signaling that industrial recovery is gaining traction. With the project approvals of stalled projects being hastened and processes under review to improve efficiency, the industrial sector should be able to register a notable 4% rise this year.

A rebound in consumption spending, however, might work with a lag given high inflation and low real returns.

In the meantime, after belt-tightening in the earlier quarter, government spending rose 8% YoY during Apr-Jun.

This should be supportive of the community and social services component, while the highly-weighted trade, transport and communication segment likely consolidated on higher visitor arrivals, rise in shipping indicators and telecom activity.

In sum, all signs suggest that the economy has recovered from the prolonged phase of bottoming out in the past two quarters.

The OECD composite leading indicator has been climbing up for nearly three quarters to Jun14, suggesting positive sentiments will boost real activity in the coming months.
We expect activity in the rest three quarters of FY15 to gradually gather momentum, taking full-year growth to 5.5%.