INDICATORS SHOW ECONOMY’S SET TO TURN THE CORNER

From soaring investments and hiring to smooth sailing for ports and fired-up output data,all signs indicate that the bounce is indeed back

GROWTH ahoy! A raft of lead indicators, investments that refuse to flag, rejuvenated hiring, sprightly freight movement at major ports and robust data from key manufacturing segments indicate that the downturn has bottomed out and that the economy is poised to regain its vigour.
    Nomura's Composite Leading Index (CLI), UBS' Lead Economic Indicator (LEI) and ABN Amro's Purchasing Managers' Index (PMI) all point to a pick-up in growth soon. And CMIE's capex database, which tracks investments by companies, shows no big slowdown in this space.
    A lead indicator is a composite of a variety of indices that track activity in vital economic sectors.
    And that's not all. The strong showing of sectors such as auto, cement, steel, capital goods, port traffic along with record telecom subscriber additions supports the strong turnaround thesis of these lead indicators.
    After rising for three successive months, UBS' LEI index for India now stands at 2.1; it touched a low of -2.08 last December. The LEI is a composite indicator of variables like government bond yields, M1 money supply, currency risk premium, foreign exchange reserves and stock market gains.
    UBS' economist Philip Wyatt expects a sustained recovery thanks to India's low levels of excess capacity, private sector indebtedness and non-performing loans. "With this significant rebound in LEI, we are more confident of a turning point in the industrial cycle by June 2009," says Mr Wyatt in a research report.
    Nomura's composite leading index (CLI)—used to identify the turning points in the growth rate cycle—rose in the first quarter of 2009 after four consecutive quarterly falls. As the CLI indicates a turnaround in non-agricultural GDP growth rate with a two quarter lead time, the pick-up in the first quarter of 2009 hints at a recovery from June.
    ABN Amro's PMI — an indicator of the country's manufacturing scene based on a survey of 500 companies — has improved to 49.5 this March from 44 last December. A reading below 50 indicates contraction. The PMI jump to nearly 50 suggests that manufacturing has put the contraction days behind and is poised to enter an expansion phase. Corporates keep the pace on investments
THAT the PMI has recovered to nearly 50 suggests that manufacturing is now about to enter an expansion phase. The suggestion is that inventories have been run down, necessitating steppedup production. The number of cars sold in March at 1,66,837 was 45% higher than the 1,15,334 sold in December 2008. Two-wheeler sales climbed 42% from 4,61,302 in December, to 6,54,017 in March. The index of industrial production has inched its way to positive territory, even as capital goods production registered a growth of 10% in February.
    CMIE's capex database of new and ongoing investments in India indicates that both the rate of new investment project announcements and the pace at which projects are being commissioned remain robust.
    It says the downward revision of projected growth rate for the current fiscal by both the Bretton Wood institutions, the World Bank and IMF, is baseless. According to the database, the momentum in commissioning new projects will continue into the next fiscal as well.
    Over 1,000 projects involving total investments of Rs 4,90,000 crore are on schedule and will be commissioned in 2009-10. Projects worth a record Rs 7,90,000 have been announced in the quarter ended March 2009 itself, suggesting that corporates have not pared investments to the extent expected.
    Import data shows that even as overall imports have been slowing down, project import growth has remained robust (200% growth in January). While portfolio investment inflows have been fickle, direct investment inflows remain strong, prompting official expectation that FDI inflows in 2009 would exceed the realised inflow of $33 billion in calendar 2008 and touch $40 billion.

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