India's got momentum
Bloomberg notes a series of forward looking indicators on the Indian economy paint a picture of positive growth, and an uptick in animal spirits, as shown in the chart they assembled (below).
The article notes that the RBI is optimistic on the country's growth and a narrowing output gap. The RBI sees inflation increasing in the coming months on the back of this growth, convincing analysts that the RBI could hike rates again this Wednesday - back to back.
Next the article breaks down the indicators.
Services PMI, the dominant industry in India, rebounded in June, pulling up the composite PMI index to the highest mark since October. Similarly, New Orders rebounded from a dip in May, to its highest since the fourth quarter of 2016. Output prices are rising, but at a slightly lower pace than in 2017. The RBI notes that companies are increasingly more able to transfer higher input costs to consumers, likely stoking inflation.
Exports are still recovering from the drop caused by the cash ban and implementation of the new tax laws. Exports lagged global recovery, and may take another hit from a possible trade war. The only positive is a weaker Rupee.
Credit provided to various sectors including Agri rose 12.3% on the year. However, there are also concerns that rising borrowing cost decrease issuance by corporates, indicating total credit provided to the corporate sector is weak.
The best proxy for retail activity, auto production and sales, paint a positive picture. India produced 17% more vehicles over April-June than a year ago, and passenger car sales rose by 20% over that period.
FDI picked up again in April after a slowdown in March. However, with the risk of an election next year and the governmental paralysis that comes with it, FDI is expected to slow down once more for the balance of the year.
Two big components of Activity, Mining and Heavy Industries, accounting for 40% of industrial output, have been contracting to 10-month lows in May this year, due to a drop in steel and cement output and crude and natural gas production. On a brighter note, Coal production has seen double digit increase for the second month in a row, and Electricity Generation rose with 3.5%, from 2.1% in April.