E
CO
S
COPE
The Economy Observer
3 January 2017
Indian economy grew 5.6% YoY in November 2016
Low base helps investment post its first growth in five months
As per our monthly economic activity index (EAI), the Indian economy grew 5.6% YoY in November 2016 against 6.8%
YoY growth in October 2016 and only 4% YoY growth in November 2015. In the first eight months of FY17, India’s EAI
grew at an average of 6.5%, better than the 6% growth witnessed in the corresponding period last year.
In November 2016, while consumption continued to grow strongly at 8.4% YoY (following 10.5% YoY in October),
favorable base helped investment post its first growth in five months. However, with imports growing faster than
exports, higher trade deficit acted as a drag on economic growth.
India’s economic activity grew decently in November 2016…:
Our preliminary
estimates reveal that as against a growth of 6.8% YoY in
October 2016,
India’s
EAI grew 5.6% YoY in November 2016
(Exhibit 1).
It implies a growth of 6.5% YoY
in the first eight months of FY17, as against 6% growth witnessed in the
corresponding period last year. As we had detailed in our
earlier report,
our
composite EAI has a very strong correlation with official real GDP (excluding
discrepancies) growth
(Exhibit 2).
Since our composite EAI is arrived at using
three separate leading monthly indices for consumption, investment and trade,
it is important to look at these drivers of EAI
(Exhibit 3).
…as consumption continues to grow strongly…:
A look at the components of
our Motilal Oswal leading indicator (MOLI) for consumption reveals that a 29-
month high growth in passenger traffic (railways + aviation), 14-month high
growth in real rural wages, and reasonably strong growth in government’s
revenue spending, petrol consumption and production of consumer durables
helped consumption to grow 8.4% YoY in November 2016
(Exhibit 4),
following
double-digit growth in October 2016 (please see
Exhibit 7
for heat map).
…and investment posts first growth in five months:
Our MOLI for investment
shows ~2% YoY growth in November 2016, marking the first growth in five
months
(Exhibit 5).
In November 2016, 24-month high growth in cargo traffic, 7-
month high growth in power generation, and an expected growth of ~5% in
production of capital goods more than offset the 33-month worst decline in
auto sales, weak growth in construction and continued fall in capital goods
imports (please see
Exhibit 8
for heat map). Investment index shrank 2.5% YoY
in April-November 2016, as against a growth of 3.5% in the corresponding
period last year.
External trade acted as a drag in November 2016:
Finally, faster growth in
imports in November led to significant widening in trade deficit, which acted as
a drag on EAI for the first time in ten months
(Exhibit 6).
Note: Estimates of Economic Activity Index (EAI) for the month prior to the recently concluded month will be
released in the first two business days of every month. November EAI is released today.
Nikhil Gupta
(Nikhil.Gupta@MotilalOswal.com); +91 22 3982 5405
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.

Exhibit 1: India’s economic activity grew 5.6% YoY in
November 2016
12
10
8
6
4
2
0
(2)
Nov-15
Feb-16
May-16
Aug-16
Nov-16
Please refer to our earlier
report
for details
% YoY
3mma
Economic Activity Index
Exhibit 2: Composite EAI shares a very strong correlation
with real GDP (ex discrepancy) growth
14
12
10
8
6
4
2
0
Q2FY02
Q2FY05
Q2FY08
Q2FY11
Q2FY14
Q2FY17
(% YoY)
Composite EAI
Real GDP*
Source: CEIC, Various official sources, MOSL
Exhibit 3: Higher EAI driven by strong consumption and
revival in investments
Consumption
(pp)
1.4
4.5
(2.0)
1.2
4.4
(1.8)
Investment
0.2
7.4
Net exports
0.5
6.2
(1.3)
Nov-16
GDP
Exhibit 4: MOLI for consumption grew strongly at 8.4% YoY
in November…
12
10
8
6
4
2
0
Nov-15
Feb-16
May-16
Aug-16
Nov-16
Source: CEIC, Various official sources, MOSL
% YoY
3mma
MOLI: Consumption
(0.7)
Oct-16
Nov-15
Sep-16
Exhibit 5: …while MOLI for investment posted first growth in
five months
10
5
0
(5)
(10)
Nov-15
Feb-16
May-16
Aug-16
Nov-16
% YoY
3mma
MOLI: Investment
Exhibit 6: Faster pick-up in imports led to widening of trade
deficit in the past couple of months
30
20
10
0
(10)
(20)
(30)
(% YoY)
Exports
Imports
Source: CEIC, Various official sources, MOSL
3 January 2017
2

Exhibit 7: Key leading indicators for consumption
% YoY
Jan-16
Feb-16
Mar-16
Apr-16
May-16
Jun-16
Jul-16
Aug-16
Sep-16
Oct-16
Nov-16
1
2
Currency
12.5
13.3
14.9
15.1
14.7
15.7
16.7
17.4
15.2
17.2
(23.6)
Auto
1
sales
2.3
11.0
10.0
19.8
9.3
10.9
14.0
24.9
21.4
8.1
(4.7)
Petrol
sales
11.4
12.9
21.5
11.9
13.6
4.4
14.7
24.9
(3.4)
13.8
14.2
Rural
2
wages
(0.1)
0.2
0.8
0.3
(0.2)
(0.2)
(1.0)
(0.2)
0.6
1.8
2.2
7
Passenger
3
traffic
3.4
4.8
(0.6)
0.2
1.5
(0.7)
1.1
2.3
0.4
(0.4)
7.3
Revenue
4
spending
(0.1)
2.5
23.9
12.5
30.0
43.6
(17.7)
1.6
33.1
52.7
15.9
Imports
(10.5)
(4.5)
(22.9)
(23.1)
(13.7)
(7.4)
(18.9)
(14.2)
(2.5)
8.0
10.4
5
Foreign
tourists
6
arrival
3.0
4.4
(1.1)
(0.3)
1.0
(1.2)
0.6
1.9
(0.1)
(0.9)
7.0
Consumer
durable
goods
5.6
10.4
10.1
11.8
5.9
5.4
5.9
2.2
13.9
0.2
3.1
7
Personal
credit
18.1
19.2
19.4
19.7
19.1
18.5
18.8
18.1
19.7
17.0
15.2
Includes passenger vehicles and two-wheelers
Real rural wages; deflated by CPI for rural workers
3
Railways and aviation
4
Excluding interest payments (only for central government)
5
Imports of agricultural items, leather products, newsprint and electronic goods, textiles (excluding gold, silver, precious metals)
6
In persons unit
7
Our forecasts for November 2016
Source: Various National Sources, CEIC, MoSL
Exhibit 8: Key leading indicators for investments
% YoY
Jan-16
Feb-16
Mar-16
Apr-16
May-16
Jun-16
Jul-16
Aug-16
Sep-16
Oct-16
Nov-16
1
2
Cargo
1
traffic
1.9
3.9
1.1
1.0
0.8
4.0
(0.2)
(1.6)
1.0
2.8
7.2
Electricity
6.0
9.2
11.3
14.7
4.6
8.1
1.6
0.1
2.2
2.8
10.2
Industrial
credit
5.6
5.4
2.7
0.1
0.9
0.6
0.6
(0.2)
0.9
(1.7)
(3.4)
Auto
2
sales
15.0
24.7
21.4
25.4
21.4
7.7
1.0
5.0
1.1
8.3
(18.3)
Govt
3
capex
647.0
(44.9)
(52.9)
(20.5)
7.5
(24.4)
(18.7)
239.1
20.3
(165.7)
11.5
Diesel
sales
7.9
10.8
15.4
4.3
8.1
1.5
1.8
13.0
(11.3)
5.1
10.6
Capital
goods’
4
imports
(8.2)
18.7
6.3
(27.8)
(1.9)
1.7
(7.1)
(10.5)
(4.7)
7.7
(11.3)
Cement
production
9.0
13.5
11.9
4.4
2.4
10.3
1.4
3.1
5.5
6.2
0.5
IIP: Non-
metallic
products
6.3
11.1
9.3
3.4
1.0
5.5
(0.7)
2.2
2.8
3.2
3.4
5
IIP: Capital
goods
(21.6)
(9.3)
(15.3)
(25.3)
(12.5)
(16.1)
(29.5)
(22.1)
(21.6)
(25.9)
4.9
5
Includes railways and waterways
Include commercial vehicles and three-wheelers
3
Capital spending by central government
4
Machinery & equipment, transport equipment, machine tools and project goods
5
Our forecasts for November 2016
Source: Various National Sources, CEIC, MoSL
Worse than previous month and a year ago
Better than the previous month but worse than a year ago
Worse than the previous month but better than a year ago
Better than previous month and a year ago
3 January 2017
3

Leading Indicators for consumption:
Exhibit 9: Auto sales fell in November 2016
(% YoY)
Auto sales#
Exhibit 10: Petrol consumption was growing stably
(% YoY)
Petrol sales
14.2
(4.7)
# Includes passenger vehicles and two-wheelers
Exhibit 11: Real wages have picked up due to sharp fall in
inflation
Real rural wages
2.2
Exhibit 12: Passenger traffic growth in November was the
highest in 29 months
(% YoY)
Passenger traffic
7.3
(% YoY)
Nov-16 is our estimate
Deflated by CPI for rural workers
Railways + Aviation
Exhibit 13: Central government’s revenue spending
continues to grow decently
Central government's core revenue spending
(% YoY)
15.9
Exhibit 14: Consumption-based imports have picked in the
past couple of months
Consumption based imports
10.4
(% YoY)
Revenue spending excluding interest payments
Imports of agricultural items, leather products, newsprint and
electronic goods, textiles
3 January 2017
4

Exhibit 15: Demonetization didn’t hurt foreign tourists in
November 2016
(% YoY)
Foreign tourist arrivals
7.0
Exhibit 16: Production of consumer durable goods expected
to have picked up in November
(% YoY)
IIP: Consumer durables
3.1
In persons
Nov-16 is our estimate
Exhibit 17: Personal credit growth witnessed a sharp
deceleration in November
(% YoY)
Personal credit
Exhibit 18: …and PMI for services contracted (below 50) for
the first time since June 2015
56
53
50
15.2
47
44
(
Index
)
PMI: Services
46.7
An index of 50 implies no change
Exhibit 19: We expect consumer non-durable goods IIP to
witness higher growth in a year…
(% YoY)
IIP: Consumer non-durable goods
2.9
Exhibit 20: …though food production IIP may remain broadly
unchanged
(% YoY)
IIP: Food products
0.3
Nov-16 is our estimate
Nov-16 is our estimate
3 January 2017
5

Leading Indicators for investment:
Exhibit 21: Cargo traffic growth picked up significantly in
November…
(% YoY)
Cargo traffic
7.2
Exhibit 22: …and power generation grew at the fastest pace
in 7 months
(% YoY)
Electricity production
10.2
Railways + ports
Source: CEIC, Various official sources, MOSL
Exhibit 23: Industrial production declined for the second
consecutive month…
Industrial credit
Exhibit 24: …while auto sales witnessed a sharp contraction
in November 2016
(% YoY)
Auto sales
(% YoY)
(3.4)
(18.3)
Include commercial vehicles and three-wheelers
Exhibit 25: Construction activity witnessed slowest growth
in four months…
(% YoY)
Construction
Exhibit 26: …but capital spending by central government
picked up in November
(% YoY)
Central government's capital spending
1.9
11.5
Cement production & IIP for Non-mineral metallic products (NMMP)
Nov-16 data for IIP: NMMP is our estimate
Source: CEIC, Various official sources, MOSL
3 January 2017
6

Exhibit 27: Diesel sales grew reasonably in November…
(% YoY)
Diesel sales
10.6
Exhibit 28: …but imports of capital goods fell sharply
(% YoY)
Capital goods' imports
(11.3)
Machinery & equipment, transport equipment, machine tools and
project goods
Exhibit 29: Expect IIP for capital goods to post first growth in
13 months…
(% YoY)
IIP: Capital goods
4.9
Exhibit 30: …manufacturing PMI deceleration in November
and contracted in December 2016
56
53
50
47
44
(Index)
Manufacturing PMI
52.3
Nov-16 is our estimate
Exhibit 31: Cement production eased in November…
(% YoY)
Cement production
Exhibit 32: …but we expect manufacturing IIP to pick up
(% YoY)
IIP: Manufacturing
4.5
0.5
Nov-16 is our estimate
3 January 2017
7

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