Newly launched SBI Composite Index signals revival in economy

MUMBAI: Forget the HSBC’s Purchasing Manager Index, an estimator of economic activity. The State Bank of India’s newly launched SBI Composite Index has jumped 16% in December to 55.4, indicating a strong revival in manufacturing and services activity in the country.

The current reading for December is the highest in the past 20 months amid a turnaround in sentiment after Narendra Modi was elected to power, said the bank which has a fifth of the nation’s banking industry market share. “It gives a feel on which way the economy is going and how banks are preparing itself for it,” said Arundhati Bhattacharya, chairman, State Bank of India. “We are using SBI loan book as an input because given our reach and share in the banking space we believe it mirrors the credit demand in the economy.”

SBI’s forward-looking economic indicator — the SBI Composite Index — tracks primarily manufacturing activity in the country and also aims at predicting the phase of business cycles for the economy. The index will help regulators, policy makers and market participants to identify the turning points in the manufacturing cycles in advance and adjust their investment or marketing strategy.

This forward-looking indicator takes into account detailed activity/traction in consumer spending, mining activity, interest rates, inflation, exchange rates, SBI lending and performance of various thematic indices. While the SBI index is a composite index compiled by State Bank of India (SBI) based on its internal loan portfolio and data available in public domain, other indices such as the HSBC purchase manager’s index are survey-based. This indicator, which will be published monthly, will track two months in advance the possible trends in official estimates.

This makes the index more reliable, say economists. “Hence, the SBI index has higher validity,” said SK Ghosh, chief economic advisor, State Bank of India. “For the period 2007-2014, the SBI Composite Index predicts the direction correctly for 72% of times. The directional predictability for PMI is around 50% for the same period,” he added.