Adding some cheers to the manufacturing sector, the report of the SBI Composite Index has stated that country's manufacturing sector growth improved both in terms of month-on-month as well as yearly basis in August. The yearly SBI Composite Index, an indicator for manufacturing activity in the country, for August increased to 53.1 from 49.7 in the previous month, while the Monthly Index improved to 52.2 in August from 46.7 in July.
The SBI research report though pointed that mining and electricity are still acting as a drag on the economic activity and the upturn was majorly driven by manufacturing. The pickup in economic momentum was supported by positive trends in capital goods sector. As per the report one of the positive developments is the order inflow of four major companies-BHEL, L&T, ABB and Thermax which grew by 5.5% (y-o-y) in the Jun’15 quarter. Furthermore, the Medium & Small companies in Capital Goods (Electrical & Non-Electrical Equipment) are making some in-roads in topline growth. Also, the recent quarter results (Q1FY16) reveal that the capital goods (electrical equipment) reported profit. Looking ahead, it is expected that growth in order inflow in FY16 would be in the range of 15%-17% largely driven by state utilities.
The research report has further stated that looking ahead, it is expected that growth in order inflow in this fiscal would be in the range of 15-17 percent and this would largely be driven by state utilities. Though, it cautioned that pricing pressure still persists in the system due to excess manufacturing capacity and lower opportunities. The report added that, as the government is taking steps in the right direction in terms of policy action, we believe that execution will pick up from second half of fiscal year 2015-2016.
The SBI Composite Index captures two components of the manufacturing cycle namely month-on-month and year-on-year growth on a scale of 0 to 100. An index value of 42 to 46 means (moderate decline), 46 to 50 (low decline), 50 to 52 (low growth), while 52 to 55 means (moderate growth) and above 55 high growth.
