BCI, lead indicator to IIP, suggests economy on recovery path with third consecutive improvement
ZyFin Research, a leading financial research and analytics company, today announced its Business Cycle Indicator (BCI) for the month of June 2014. The index, which is a lead indicator to the Index of Industrial Production (IIP) trend, has registered a score of 6.6% in June, as compared to 5.0% in the previous month, suggesting moderate growth in industrial activity in the month of July.The third consecutive improvement in the BCI suggests that the Indian business cycle is already on the recovery path. Measures announced in the Union Budget 2014-15 hold the potential to ensure that this period of expansion is not short-lived. Proposals on several fronts, including suggested tax reforms to improve Central Government Revenue Receipts, the emphasis on tourism, efforts to increase availability of electricity and opening up of FDI in key sectors, would directly strengthen the Indian business cycle. Moreover, the major thrust on sectors such as infrastructure, agriculture and construction, as well as steps to enhance domestic savings would lead to a major turnaround in the manufacturing sector and the associated job market.
ZyFin Research's BCI (INBFBCI) is an independent leading indicator of the business cycle in India. Since it indicates the state of the Indian business cycle more than two months prior to the release of IIP data, it allows reliable and advanced detection of turns in the business cycle. A three-month uptrend in the BCI signifies an improving business cycle and vice versa.
The uptick in IIP data for May, published by MOSPI, reflects the BCI's accuracy in real-time estimation of manufacturing activity. The BCI had been signaling a recovery in IIP since April 2014, and the latest official estimate corroborates this.
The key highlights of the ZyFin Research Business Cycle Indicator for June 2014 are:
The ZyFin Business Cycle Indicator (BCI) registered year-on-year growth of 6.6% in June 2014, as compared to 5.0% in the previous month. As the BCI leads the Index of Industrial Production (IIP) by one month, this indicates expanding industrial activity over the month of July 2014.
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The upswing in the business cycle is underscored by improved gross earnings from tourists, robust foreign assets and an uptick in the Sensex. The BSE Sensex gained 3% in June 2014, buoyed by hopes that a stable government will help implement key economic reforms to drive growth.
The Union Budget 2014-15 has proposed an increased focus on multiple key variables affecting the BCI. These include Central Government Revenue Receipts, gross earnings from foreign tourists, domestic air passengers, availability of electricity and foreign exchange reserves. As a result of this, we expect a slow and gradual improvement in the BCI over a period of time.
Furthermore, the ZyFin Consumer Outlook Index of India improved for the second consecutive month to 44.3 in June 2014, helped by improved spending and employment sentiment.
Giving his views on the June number, Debopam Chaudhuri, Chief Economist, ZyFin Research, said, With the Finance Bill 2014-15 providing impetus to reviving the sagging manufacturing sector, it is expected to be a key driver for employment in the economy. Based on BCI estimates, this sector has already bottomed out, and with fiscal support, a speedy recovery within the next 8 to 12 months appears achievable.
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