22 November 2016
Diving into Trending Themes
Monthly data confirm 6.5% growth is for real in India
Creating monthly economic activity index (EAI) since 1998
Based on monthly macroeconomic indicators, we create India’s economic activity index (EAI), which shows that
the economic growth averaged 6.6% YoY in the first nine months of 2016 as against ~5% growth over the
previous five years (2011-2015). Motilal Oswal’s leading indicators (MOLI) suggest that consumption continues
to run strong; however, investment is witnessing one of the worst phases in the past two decades.
We find, however, that the growth in economic activity eased towards 5% YoY in 2QFY17 as against 7.5% in the
previous two quarters. A sharp contraction in investments, along with some deceleration in consumption, has
contributed to a slowdown in our composite EAI in the recent quarter.
It is important to note that while our composite EAI is a reliable indicator to gauge economic activity, it should
not be compared with the official GDP statistics because the latter includes an estimate for the unorganized
sector also. Our leading indicators are based on monthly data covering the formal section of society.
is Motilal Oswal’s new
product in which we deep-dive into trending macro-
economic themes. This new product complements
our existing “Ecoscope” product, which is reserved
for regular updates on macro-economics.
Since the release of new GDP series (on 2011-12 base),
its credibility has been in question. The key reason for
the disagreement is a widely-held belief that GDP data is
not in sync with high-frequency monthly indicators.
Weakness in bank credit growth and IIP (index of
industrial production) are often quoted to support this
criticism. Further, very high contribution of
‘discrepancies’ has also shaken confidence in the official
statistics. To bridge this gap, we introduce Motilal
Oswal’s leading indicators (MOLI) for consumption,
investment and external trade. Based on our
econometric analysis, we have combined five monthly
macroeconomic data series to create MOLI for
consumption, eight monthly data points to create MOLI
for investment, and five data points to create MOLI for
external trade (of goods & services).
These leading indicators are then weighted to create a
composite monthly index for economic activity.
shows the high correlation between our composite EAI
and official estimates of real GDP growth (excluding
discrepancies). The two indicators share a strong pair-
wise correlation, which is as high as ~71%.
Exhibit 1: Strong correlation between our composite EAI and
real GDP growth
* Excluding discrepancies
4-quarter moving average
Source: CEIC, several national sources, MoSL
Innovation is seeing what everybody
has seen and thinking what nobody
(Nikhil.Gupta@MotilalOswal.com); +91 22 3982 5405
Further, our leading indicators are available for almost
two decades, providing a great source of information on
Indian economic activity since late 1990s. We also find
that MOLI confirm consumption to be the key driver of
economic growth, while investments lag markedly.
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.