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SBI Index shows sharp dip in manufacturing contracts

SBI Index shows sharp dip in manufacturing contracts
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India’s manufacturing contracted sharply in April as buildup in new orders and capacity utilisation remained “patchy and erratic”, SBI Composite Index said on Thursday.

The index fell to 46.8 in April, from 58.5 in March. A reading above 50 implies growth, while less than 50 suggest a contraction over respective period. “Weak performance of the month on month Index suggests that the buildup in manufacturing momentum is still patchy and erratic,” SBI said in a research note, adding that “the recent RBI OBICUS survey in fact points out capacity utilisation as well as new orders are still a laggard”.

On annualised basis, however, the index showed 5-year high growth. The yearly SBI Composite Index for April 2015 has reached a 61-month high at 58.2, from 54.6 in March 2015, aided by low base value of April 2014. An index value of less than 42 means large decline, while 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, SBI said.

The medium term fundamentals look “sound and promising”, however, some corrective steps needs to be taken in the short term, said the SBI research report. Over the medium term, the successful completion of the coal and telecom auctions are likely to provide a possible blip in bank lending books. Added to this, recently, there was a successful completion of the bidding process for a large road sector project. “Going forward, this may also be an added source of traction for bank lending,” SBI said. In the short term, infrastructure and construction industry executing major projects which are facing financial crisis should be given special attention, it said, adding “a thorough review and corrective measures are therefore immediately required as is being done”.

The SBI Composite Index rivals the existing data point from British lender HSBC. It has been developed on the basis of the bank’s internal loan portfolio, which mirrors the credit demand in the country, and other data sets available in the public domain.

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