SBI's new Composite Index points to turnaround in IIP - Times of India

The author has posted comments on this article TNN | Dec 10, 2014, 03.29AM IST

MUMBAI: State Bank of India chairman Arundhati Bhattacharya has said that there were indications of a turnaround in index of industrial production ( IIP) going by a new economic indicator created by the bank - the SBI Composite Index. The index launched on Tuesday draws from loans disbursed by SBI in both the manufacturing sector to determine expansion or contraction in the economy.

SBI, being the largest lender in the country, is well placed to develop the index as its loan portfolio mirrors the credit demand in the country. Bhattacharya said, "The index will help policymakers, market participants and the like to identify the turning points in the manufacturing cycles in advance and adjust their investment or marketing strategy. Going by the latest data, it would appear that the economy has bottomed out and growth is around the corner."

At present, the only leading indicators for the markets are the HSBC India Purchasing Managers' Index (PMI) and HSBC India Services Business Activity Index. "For 2007-2014 period, the SBI composite index predicts the direction correctly for 72% of times. The directional predictability for PMI is around 50% for the same period," SBI said in a statement.

SBI will publish the indicator on a monthly basis. This index will track two months in advance the possible trends in official estimates. This indicator takes into account detailed activity/traction in consumer spending, mining activity, interest rates, inflation, exchange rates, SBI lending and performance of various thematic indices.

The Composite Index will capture two components of the manufacturing cycle namely month-on-month and year-on-year growth. Accordingly, two separate indices have been constructed and both the indices are on a scale of 0 to 100. Index above 50 implies growth.