INDIA DEMAND WATCH

A monthly update on demand and stress conditions within the domestic economy
January 2015

Demand: Tremulous, but brave

At 3.8% in November, the IIP remains a conundrum with wide sectoral nuances. But the bias is now positive. A low base last year has
given an upward fillip to mining and manufacturing growth (3.4% and 3% in November respectively), but volumes too are now rising.
Mining has started in Karnataka; Odisha should follow suit in 2015 though Goa is moribund. Electricity is growing strongly at 10%.
Crucially, core sector IIP touched a 14-month high of 6.7% in November. Basic goods are at 7.5% in Apr-Nov (up from 1.2% LY) and
capital goods output rose 4.9%, (over 0.1% contraction LY), indicating some investment in capacity. The jury is still out on this
though a buoyant Q1 was brought low by a contracting Q2. Q3 has so far been strong with 6.5% growth in November. If this holds,
then stagnant manufacturing (Manufacturing IIP was 1.1% Apr-Nov) will see an upward fillip, albeit with a lag.
Consumers remain hesitant. Car sales were up 13.5% in December, leading to (or led by) a rise in production with the IIP for motor
vehicles at 17.5% in November (though the fuller period Apr-Nov still reflects a 0.6% contraction). However, this sales growth is on the
back of a negative base last year, and the rise in production was potentially to take advantage of excise duty concessions that ended in
December. Consumer durables IIP also dropped 16% over Apr-Nov; non-durables grew just under 2% over 6.2% LY.
On the flip side, non-oil imports in Apr-Nov were 8.1% higher YoY a steady sign of reviving domestic demand. Exports are
another bright spot, led by textiles (8%), leather (15.8%) and gems and jewellery (3.1%). A depreciated Rupee, weakness in competitor
nations and returning demand in the US are key to this quiet resurgence. Oil remains the swing agent in both the export and import side.
Can this continue? Yes, if the government accelerates infrastructure and progresses on reform. The PM has announced that he would
now directly oversee the PMG. Longer term, the Lok Sabha passed a bill scrapping 88 redundant laws (now with a Committee); the GST
bill has been tabled in Parliament; and efforts are on to streamline the MGNREGS for more effective subsidy outgo.

Demand indicators:

= demand rising;

Sensex^
Net FII inflows (USD bn)^
Inbound FDI (USD bn)^
IIP
IIP capital goods
IIP core sector
Of which Cement
HSBC Purchasing Managers Index
IMA Business Confidence & Performance Index
Naukri Job Speak (new job listings) @
Exports
Imports
Passenger car & utility vehicles sales
Two wheeler sales
Non-food credit growth@
Credit card usage@

= demand falling;

FY13
8.2%
31.0
29.8
1.1%
-6.0%
6.5%
7.7%
52.0
52.6
11.5%
-1.8%
0.3%
-3.3%
2.4%
13.5%
28.2%

FY14
18.8%
8.9
30.8
-0.1%
-3.6%
3.6%
3.0%
51.3
60.1
13.1%
4.7%
-8.3%
-4.7%
7.3%
14.3%
21.9%

= demand steady
FY15 YTD#
22.8% (Dec)
33.0 (Dec)
22.0 (Nov)
2.2% (Nov)
4.9% (Nov)
4.6% (Nov)
8.5% (Nov)
54.5 (Dec)
71.5 (Oct)
-3.4% (Dec)
3.2% (Nov)
4.5% (Nov)
5.1% (Dec)
11.0% (Dec)
4.1% (Nov)
29.3% (Nov)

Latest quarter#
3.3% (Dec)
8.9 (Dec)
9.5 (Sep)
1.4% (Sep)
-0.5% (Sep)
3.4% (Sep)
9.8% (Sep)
54.5 (Dec)
71.3 (Jun)
-6.1% (Dec)
1.8% (Sep)
10.1% (Sep)
3.6% (Dec)
1.4% (Dec)
0.2% (Sep)
34.8% (Sep)

Latest month#
-4.2% (Dec)
2.0 (Dec)
2.1 (Nov)
3.8% (Nov)
6.5% (Nov)
6.7% (Nov)
11.3% (Nov)
54.5 (Dec)
71.5 (Oct)
-3.1% (Dec)
7.3% (Nov)
26.8% (Nov)
13.5% (Dec)
4.3% (Dec)
11.0% (Nov)
18.7% (Nov)

Trend

Stress: Brought down by benign inflation, but the government needs to deliver
The wind beneath Indias wings, CPI has eased successively 5% in December (though this will rise as LYs base effect wears off). At
4.78% (provisionally) in December, food price inflation remains benign, less than half of LYs 12.49%. Oil prices too remain tempered
given dull global growth. The Rupees recent yo-yo should steady with higher fund flow allocations expected for India in the new year.
Monetary conditions have also eased, with weighted average call rates and long-term yields for government and corporate bonds
moderating since August. However, this is yet to transmit into lower lending rates. Ultimately, the latter will depend on bank risk
averseness and the state of bank balance sheets. Whilst NPAs remain much beyond the RBIs comfort zone, Indias Corporate Debt
Restructuring (CDR) programme added only 16 new cases (Rs 162 bn) in H1 2014-15, over 101 (Rs 1.3 trn) in 2013-14.
Government finances are however concerning. The fiscal deficit was at 98.9% of target by November. Tax earnings had grown by
just 4.3% against to a full-year target of 16.9% and the disinvestment target of Rs 580 billion is at risk, with only SAIL (Rs 17 bn)
through. The ONGC and Coal India part-sales (budgeted at Rs 380 bn) stand deferred due to choppy investor sentiment. The target may
still be met, but with a 10% mandatory cut in non-plan expenditure and worryingly, possible cuts in capital spending.

Stress indicators:

= stress rising;

Inflation (WPI)
Base lending rate (Min/Max, %)
INR/USD^
Trade balance USD bn

Current account USD bn

Change in foreign reserves^ USD bn
Fiscal Deficit INR bn
Tax revenues
Sovereign ratings (S&P)
Growth in company net sales (YoY)
Growth in PAT (YoY)
PAT to Sales
Interest Coverage Ratio

= stress falling;

= stress steady

FY13
7.4%
9.60/11.25
-6.3%
-190.3

FY14
6.0%
10.0/11.5
-10.5%
-135.8

FY15 YTD#
3.9% (Nov)
10.0/11.5 (Dec)
-5.4% (Dec)
-104.1 (Nov)

Latest quarter#
3.9% (Sep)
10.0/11.5 (Dec)
-2.8% (Dec)
-38.9 (Sep)

Latest month#
0.0% (Nov)
10.0/11.5 (Dec)
-2.2% (Dec)
-16.9 (Nov)

-87.8

-32.4

-17.9 (Sep)

-10.1 (Sep)

NA

-0.3
4899
17.7%
BBB-/Negative
Sep-13
3.5%
-23.1%
5.1
2.9

16.7
5081
10.1%
BBB-/Negative
Dec-13
0.6%
-3.8%
5.4
3.0

19.0 (Dec)
5251 (Nov)
4.3% (Nov)
BBB-/Stable
Mar-14
2.8%
15.4%
6.4
3.4

8.0 (Dec)
1410 (Sep)
9.0% (Sep)
BBB-/Stable
Jun-14
5.2%
36.2%
6.7
3.4

4.6 (Dec)
494 (Nov)
12.1% (Nov)
BBB-/Stable
Sep-14
9.1%
40.6%
6.6
3.2

Trend

# Dates in parentheses refer to the month/quarter for which data is reported ^ YoY for FY13 and FY14 and absolute returns/change/amount over the period for fiscal YTD, latest month, and latest quarter; @ YoY change for FY13, FY14 and latest month, and
absolute (period) change for fiscal YTD and latest quarter

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India Demand Watch

January 2015

IIP Growth

Source: CSO

Weighted Call Money Rates: Rising again?

Nov-14

Aug-14

May-14

Feb-14

Aug-13

May-13

Feb-13

Nov-12

Nov-13

Capital goods
Realty

Dec-14

Oct-14

Aug-14

Jun-14

Apr-14

Oct-13

Source: BSE

Difference between 10-year and 1-year GOI

securities in the secondary market: Perceptions
of risk continue to prevail

10%

0.5%

9%

0.3%

8%

Auto
Oil & Gas

700
600
500
400
300
200
100
0

Jun-13

Nov-14

Sep-14

Jul-14

May-14

Mar-14

Jan-14

Nov-13

Sep-13

Jul-13

May-13

March 2009 = 100

IIP Growth (3 month moving average)

Mar-13

Aug-12

BSE Sensex
FMCG

Aug-13

10%
8%
6%
4%
2%
0%
-2%
-4%
-6%

Source: Ministry of Commerce and Industry

Market indices: Still trending up

Feb-14

Index of Industrial Production: Fluctuating

Dec-13

Source: CEIC

Feb-12

Sep-14

-20%

Jun-14

-2%

Mar-14

-10%
Dec-13

0%

Sep-13

0%

Jun-13

2%

Mar-13

10%

Dec-12

4%

Sep-12

20%

Jun-12

6%

May-12

GDP and sectoral growth: A moderation in Q2 Cumulative export, import growth: On the rise
40%
10%
GDP
Industry
Services
Imports
Exports
30%
8%

Yield differential

0.0%

7%

-0.3%

6%

Oct-12
Dec-12
Feb-13
Apr-13
Jun-13
Aug-13
Oct-13
Dec-13
Feb-14
Apr-14
Jun-14
Aug-14
Oct-14
Dec-14
Source: CEIC

Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14

-0.5%

5%

Source: CEIC

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India Demand Watch

January 2015

Automobile sales: Recovering?

30%

Consumer goods IIP: Durables still under

pressure

Passenger cars and utility vehicles

Two wheelers

20%

Durables

20%

Non-durables

10%
0%

10%

-10%

0%

Nov-14

Sep-14

Jul-14

May-14

Mar-14

Jan-14

Nov-13

Sep-13

Source: CEIC

Non-food credit growth: Remains subdued

FII and Rupee: Rupee under some pressure

20%

FII

18%

INR

44

49

54

-4

59

8%

-8

64

6%

-12

69

16%
12%

Sep-14
Nov-14

Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14

Nov-12
Jan-13
Mar-13
May-13
Jul-13

10%

Jun-13
Aug-13
Oct-13
Dec-13
Feb-14
Apr-14
Jun-14
Aug-14
Oct-14
Dec-14

USD bn

14%

INR/USD

Source: CEIC

Jul-13

Mar-13

Dec-14

Oct-14

Aug-14

Jun-14

Apr-14

Feb-14

Dec-13

Oct-13

Aug-13

Jun-13

-40%
Apr-13

-20%

Feb-13

-30%
Dec-12

-10%

May-13

-20%

Source: CEIC

Source: SEBI, RBI

Q3FY15 Business Confidence and

Performance Index (BCPI): At a fresh 4-year
high of 71.5

Business Confidence and Performance:

Higher macro-economic expectations
reflects hope in a new government; Business
parameters also looking up

90
85
80
75
70
65
60
55
50
45
40
35

All
Consumer goods
Industrials
Infra / telecom / energy

BFSI
ITeS
IT
Pharma & healthcare

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
FY13 FY13 FY13 FY14 FY14 FY14 FY14 FY15 FY15 FY15

Source: IMA Indias quarterly BCPI Survey of September-October 2014; ~350

respondents

BCPI
Macroeconomy
Business
parameters

Q3 14

Q4 14

Q1 15

Q2 15

Q3 15

50.4( )

53.8( )

60.1( )

71.3( )

71.5(

47.9( )

52.3( )

67.8( )

87.0( )

85.5(

54.6( )

56.5(

59.8( )

68.9( )

70.9(

Sales

59.1( )

60.2(

63.0(

73.8( )

75.7(

New orders

58.6( )

59.7(

63.4( )

72.8( )

75.5(

Net Hiring

44.7( )

48.7( )

52.6( )

60.6( )

62.0(

Profitability
Capacity
utilisation

54.0( )

56.1(

58.5(

67.1( )

70.0(

56.6( )

57.9(

61.5( )

70.2 ( )

71.3(

CapEx

37.9( )

45.0( )

48.7( )

54.8( )

50.8( )

Soft spend

43.1(

47.8( )

53.5( )

57.5( )

59.0(

Source: IMA Indias quarterly BCPI Survey of September-October 2014; ~350

respondents

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