Contraction mode in manufacturing to continue: SBI EcoWrap

New Delhi, Jan 26 (IANS) While overall manufacturing activity will see some improvement in January, the country’s industrial output may continue to contract at a pace of around three-six per cent, says the think tank of State Bank of India.

“The yearly SBI Composite Index for January 2017 improved to 47, compared to last month’s (December 2016) index of 45.5. The monthly Index also increased to 50.9 in January 2017 from 49.4 in December 2016,” said SBI EcoWrap in its latest report.

The SBI Composite Index is an indicator of manufacturing activity in the Indian economy and aims to foresee the periods of contraction and expansion.

The index has two indices, monthly and yearly, both of which help in assessing the country’s manufacturing performance.

“As per the index, we believe Index of Industrial Production growth may continue to contract in December 2016 and January 2017. As per the SBI Composite Index, the pace of contraction will be similar in December and January with a de-growth of between 3-6 per cent,” EcoWrap said.

The think tank also assessed the performance of 138 companies that have declared their results for the third quarter of this financial year — excluding those in banking, finance and refining sectors — and saw an overall revenue growth of 3.3 per cent and a post-tax profit growth of 4.4 per cent.

“Contrary to expectations, consumers do seem to have countered the demonetisation saga,” said EcoWrap, adding consumer sentiments in sectors like hotels and restaurants, travel agencies and packaging crossed the demonetisation bridge, possibly by increased usage of cards.

“While sectors such as IT, auto ancillary, textiles, capital goods, electrical equipment, steel and paper have shown growth in top line, power generation and distribution, infrastructure development, and consumer durables recorded de-growth in the top line,” it said.

As regard the automobile industry, based on the results, it expected the performance to be subdued due to the impact of demonetisation, with the sale of two-wheelers and three-wheelers likely to take a bigger hit due to higher cash component in their purchases.

It also forecast the financial sector to remain weak.

“The few banks who have declared their quarterly results have been impacted by demonetisation as reflected in decline in advances’ growth,” said the report, adding: “We expect public sector banks’ results to be better compared to other banks as it will come over a low-to-negative base.”

“We continue to hope that in a lower interest rate environment, consumer sentiment will remain positive and consumption-related sectors such as consumer durables, fat-moving consumer goods, automobiles, cement etc. will deliver better numbers.”