Economic outlook oct'15

1. Economic Outlook – October 2015
SEBI Registered - Research Analyst
Economic Outlook – Oct’15October2015
Oct 17, 2015
Improving macro-economic scenario
Indian Industrial Production (IIP) growth over the past three month remained over 4% and
significantly higher than average 12-months IIP growth of 3.3%. Gradual recovery in the
manufacturing sector and improving growth of consumer durables sector reflects that the
demand in the economy is improving. During August, IIP accelerated to 6.4%, a nearly
three-year high, bolstered by the strong performance of the manufacturing and mining
sectors. The benefit of easing inflation has started reflecting in purchasing power of
consumers as consumer durables sector grew by 7.7% during the first five months of
current fiscal as compared to 12.8% contraction in the same period of previous fiscal.
However, expansion in factory output can be partly attributed to low base of August 2014,
which partly tampers the optimism generated by this robust growth. Expected spike in
consumers’ demand in coming festival season and latest 50 basis point rate cut to provide
impetus to IIP growth in coming months. On inflation front, favorable base effect will not
persist from October’15, besides below normal monsoon has emerged as key risk for
inflation in near term. Meanwhile, prevailing low crude and commodity prices in the
global market and high kharif crop sowing so far this sowing season are likely to offset
these concerns.
Policy environment on both monetary and fiscal policies has turned more supportive for
economic growth. The RBI has cut 125 basis points rate cut since January’2015 to boost
the growth and improve the business sentiments. India’s fiscal health has improved, and
the government’s focus has shifted from deficit reduction to capital expenditure as the
subsidy burden has declined. The government has budgeted for a 25% increase in capex
spending in FY16 increasing public (central government) capex from 1.5% of GDP to 1.7%
of GDP. Most of the increase in public capex spending is expected to be in infrastructure
sectors, particularly roads and railways. As the private sector focuses on improving
capacity utilization and deleveraging, we expect the reviving fiscal bandwidth of Indian
government and its increased focus on infrastructure development to be catalysts for
spurring recovery in the investment cycle. Increase in public capex to improve the
economic situation which in turn will also boost private investments going forward.
CPI Inflation comes in at 4.4% in September; snaps 2-month falling trend: Consumer
Price Index (CPI)-based inflation or retail inflation for the month of September came in at
4.4% (provisional), much higher than the 3.7% (final) recorded in previous month due to
costlier food items in general and beverages & pulses in particular. However, the inflation
for the month under review has declined as against August last year when it stood at
5.6%.
Industrial recovery robust: India's industrial production grows by 6.4% in Aug 2015: In a
major sign of industrial expansion, Indian industrial output, measured by the Index of
Industrial Production (IIP), accelerated to 6.4% in August versus 4.1% in July and 0.5%
expansion in the same month of previous year.
September trade deficit drops to $10.5 billion; exports decline by 24.3%: India’s trade
deficit narrowed to $10.5 billion as compared to $12.5 billion in the previous month and
$14.5 billion in the same month of previous year despite contraction in exports as imports
also declined at brisk pace. India’s trade deficit during Apr-Sep FY16 declined slightly to
$67.9 billion as compared to $72.7 billion in the same period of previous fiscal.
Satish Kumar Sharma
Research Analyst
[T] 91-022-6707 9999; Ext: 974
1
Exp. Indian Economic Growth Forecast
Base Yr. (2011-12) FY15 FY16P FY17P
Fitch 7.3% 7.8% 8.1%
IMF 7.3% 7.3% 7.5%
ADB 7.3% 7.4% 8.2%
RBI 7.3% 7.4% -
World Bank 7.3% 7.5% 8.0%
S&P 7.3% 7.9% 8.2%
Average 7.3% 7.6% 8.0%
Key Macro Indicators
YoY(%) Sep'15 Aug'15 Jul'15
CPI 4.4% 3.7% 3.7%
Core CPI 4.3% 4.1% 4.3%
IIP - 6.4% 4.1%
Manufac. - 6.9% 4.6%
Core
sector
-
2.6%
1.1%
Repo Rate 6.75% 7.25% 7.25%
CRR 4% 4% 4%
Bank Rate 7.75% 8.25% 8.25%
Trade
Deficit
-10.5 -12.5 -12.8
YoY(%) Q1FY16 Q4FY15 Q3FY15
GDP 7% 7.5% 6.6%
CAD 1.2% 0.2% 1.6%
IIP 3.4% 3.4% 2.0%
Core
sector
2.3% 1.0% 5.1%
YoY(%) FY16E FY15 FY14
GDP - 7.3% 6.9%
CAD - 1.3% 1.7%
Fiscal Def. 3.9% 4.0% 4.4%

2. Industrial recovery robust: India's industrial production grows by 6.4% in Aug 2015
In a major sign of industrial expansion, Indian industrial output, measured by the Index of
Industrial Production (IIP), accelerated to 6.4% in August versus 4.1% in July and 0.5%
expansion in the same month of previous year. A rapid expansion in the manufacturing and
mining sectors drove the IIP output growth to a nearly three year high level. Industrial growth
had earlier touched high in October 2012, at 8.4%. However, IIP growth can be partly
attributed to low base of marginal 0.5% growth in August 2014, which partially tampers the
optimism generated by this robust growth. On cumulative basis, IIP grew by 4.1% during Apr-
Aug FY16 as against 3.1% growth in the same period of previous fiscal. The pickup in industrial
production during August was also supported by an uptick in core sector growth in the same
months (2.6% in August 2015 and 1.1% in July 2015). However, IIP growth continued to exceed
the core sector growth over the past three months.
A rapid expansion in the
manufacturing and mining
sectors drove the IIP output
growth to a nearly three year
high
2
Sectoral Performance:
The growth in domestic manufacturing sector, which represent around 75.5% of IIP, is
gradually improving and in August the sector expansion rose by 34-month high rate of 6.9%
compared to 4.6% growth in previous month and 1.1% contraction recorded in August 2014. In
terms of industries, 15 out of 22 industry groups in the manufacturing sector have shown
positive growth during the month of August 2015 with industry group ‘Furniture;
manufacturing’ has shown the highest positive growth of 90.8%, followed by 40.8% in
‘Electrical machinery & apparatus’ and 19.5% in ‘Wearing apparel. Though, seven sub-sectors
of manufacturing with a substantial weight of around 24% in the IIP Index recorded a
contraction in the reported month. Output of mining sector also improved to its nine-month
high of 3.8% due to the higher production of crude oil, natural gas in the reported month.
However, expansion in electricity sector is still hovering around 5% due to the weak demand
from industries.
YoY Sectoral Performance
IIP Mining Manufacturing Electricity
Index Weight 100.0% 14.2% 75.5% 10.3%
Aug'15 6.4% 3.8% 6.9% 5.6%
Jul'15 4.1% 0.9% 4.6% 3.5%
Aug'14 0.5% 1.2% -1.1% 12.9%
Cumulative Growth
Apr-Aug FY16 4.1% 1.2% 4.6% 3.2%
Apr-Aug FY15 3.1% 2.0% 2.0% 11.7%
Source: MOSPI
Source: MOSPI
In terms of industries, 15 out
of 22 industry groups in the
manufacturing sector have
shown positive growth
Economic Outlook – Oct’15
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
Aug'14 Sep'14 Oct'14 Nov'14 Dec'14 Jan'15 Feb'15 Mar'15 Apr'15 May'15 Jun'15 July'15 Aug'15
IIP and Core sector growth trend
IIP Core Sector

3. Manufacturing growth revived during fiscal
During the first five months of this fiscal, manufacturing growth revived to 4.6% compared to
2% in year ago period, while mining and electricity sector witnessed lower expansion of 1.2%
and 3.2% as against 2.05% and 11.7% growth in year ago period.
During the first five month of
this fiscal, manufacturing
growth revived to 4.6%
3
YoY Use-Based Classification
IIP Basic Capital Intermediate Durables Non-Durables
Index Weight 100.0% 45.7% 8.8% 15.7% 8.5% 21.4%
Aug'15 6.4% 3.4% 21.8% 2.6% 17.0% 0.4%
Jul'15 4.1% 5.0% 10.6% 1.7% 10.3% -4.6%
Aug'14 0.5% 9.0% -10.0% -0.1% -15.0% 0.4%
Cumulative Growth
Apr-Aug FY16 4.1% 4.5% 7.4% 1.8% 7.7% 0.1%
Apr-Aug FY15 3.1% 8.5% 4.8% 2.3% -12.8% 1.9%
Source: MOSPI
Source: MOSPI
The output of capital goods
sector, a measure of
investment activities in
economy, grew by a
significant 21.8% in August
compared to 10.6% growth
in the previous month.
Economic Outlook – Oct’15
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
Aug'14
Sep'14
Oct'14
Nov'14
Dec'14
Jan'15
Feb'15
Mar'15
Apr'15
May'15
Jun'15
July'15
Aug'15
Indian Industrial Production
Mining Manufacturing
Electricity IIP
0.0%
5.0%
10.0%
Quarterly trend in IIP
IIP Manufacturing
IIP (12 months Avg.) Core Sector
Use-Based Classification:
Capital and consumer durable goods pushed up industrial production during August. The
output of capital goods sector, a measure of investment activities in economy, grew by a
significant 21.8% in the reported month compared to 10.6% growth in the previous month.
During Apr-Aug FY16, capital goods sector expanded by 7.4% as against 4.8% in the April-Aug
FY15, showing an improvement in investments scenario in the country. The output of
consumer durables grew by 17% in August, the fourth expansion in past five months. This
expansion indicates that the demand in the economy is improving, however, the part of this
growth was due to the low base effect of 15% contraction in August 2014. However, the
growth of basic goods eased to 3.4% in August 2015 from 5.0% in July 2015.

4. Use-Based Classification:
4
Source: MOSPI
India’s factory output growth
rose to 6.4% in August, a
nearly three-year high, and
also came in as higher than
market expectation of
around 5%.
Economic Outlook – Oct’15
IIP Outlook
India’s factory output growth rose to 6.4% in August, a nearly three-year high, and also came
in as higher than market expectation of around 5%. Growth in manufacturing sector is
continuously improving and grew by 4.6% during first five months of current fiscal compared
to 2% on YoY basis. Expansion above 20% in capital goods sector indicates an increase in
investments in the economy, while gradual expansion in consumer durables sector shows
that a consumer demands has improved on the back of easing inflation and interest rates. We
are of the view that coming festive season, latest 50 basis points cut by RBI and easing
inflation trend to further enhance the industrial production in the country in the coming
months.
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
Quarterly Trend
Capital Goods Consumer Durables
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
Aug'14
Sep'14
Oct'14
Nov'14
Dec'14
Jan'15
Feb'15
Mar'15
Apr'15
May'15
Jun'15
July'15
Aug'15
Monthly Trend
Consumer Durables Core Sector

5. CPI Inflation comes in at 4.4% in September; snaps 2-month falling trend
Consumer Price Index (CPI)-based inflation or retail inflation for the month of September
came in at 4.4% (provisional), much higher than the 3.7% (final) recorded in previous month
due to costlier food items in general and beverages & pulses in particular. However, the
inflation for the month under review has declined as against August last year when it stood at
5.6%.
However, the inflation for
the month under review has
declined as against August
last year when it stood at
5.6%
5
Source: MOSPI
Food and beverages, which
accounts for 46% of the CPI
basket, rose to 4.3% in
September mainly driven by
high pulses prices
Economic Outlook – Oct’15
High prices of pulses spiked food inflation
Food and beverages, which accounts for 46% of the CPI basket, rose to 4.3% in September
mainly driven by high pulses and onion prices on account of supply side concerns triggered by
poor rainfall. Pulses continued to witness elevated inflation over 20% as unfavorable weather
conditions such as untimely rains has impacted the pulses production in the country.
However, the prices of fruits, vegetables and sugar further eased in the reported month.
Despite the unfavorable monsoon, food prices have still been under control on the back of
effective food management.
Rural area witnessed high inflation than urban region
Area wise, rural area witnessed high inflation compared to urban area. CPI inflation came at
5.05% in rural area as against 3.6% inflation in urban region. Consumer Food Price Index
(CFPI) inflation also remained higher for rural area at 4.1% compared to 3.5% in urban region.
Snapshot of CPI Inflation
% (YoY) Sep’15 Aug’15 Jul’15 Jun’15 May’15
Food, beverages 4.3 2.9 2.8 5.7 5.1
Cereals and products 1.4 1.2 1.1 2.0 2.0
Pulses and products 29.8 25.8 22.9 22.2 16.6
Meat and Fish 5.6 5.8 6.9 7.0 5.4
Milk and milk products 5.1 5.3 6.1 7.2 7.4
Fruits 0.9 1.0 1.5 3.5 3.8
Vegetables 0.0 -6.4 -7.9 5.4 4.6
Non-alcoholic beverages 4.3 4.4 4.4 4.8 4.8
Sugar and Confectionary -12.9 -13.3 -12.3 -8.6 -7.3
Clothing and footwear 6.0 5.8 5.9 6.3 6.1
Housing 4.7 4.7 4.4 4.5 4.6
Fuel and light 5.4 5.7 5.4 5.8 6.0
Pan, tobc. and intoxicants 9.4 9.3 9.8 9.7 9.5
CPI 4.4 3.7 3.7 5.4 5.0
CFPI 3.9 2.2 2.2 5.5 4.8
Source: MOSPI

6. CPI Inflation comes in at 4.4% in September; snaps 2-month falling trend
6
CPI or retail inflation for the
month of September
reversed a two-month easing
streak and rose 4.4% due to
higher food retail prices
Economic Outlook – Oct’15
Source: MOSPI
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
Core CPI trend
Core CPI Headline CPI
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%
Urban, rural and CFPI inflation
Rural CPI Urban CPI
Inflation Outlook
CPI or retail inflation for the month of September reversed a two-month easing streak and
rose 4.4% due to higher food retail prices. Though food inflation was mainly driven by pulses
and high onion prices as the prices of vegetables and fruits and other food items remained
soft. The impact of poor monsoon is likely to reflect in food items soon. Monsoon season
rain has been 14% less than normal, with a drought-like situation in parts of Maharashtra,
Karnataka and Bihar. On headline inflation front, favorable base effect will not persist from
October’15 and much clearer picture of the retail price movement can be gauged.
Meanwhile, we believe that despite the unfavorable base effect, CPI inflation to remain low
in coming months particularly due to prevailing low crude and commodity prices in the
global market and high kharif crop sowing so far this sowing season. Overall, RBI’s inflation
target of 6% by January 2016 is likely to be achieved.

7. Deflationary trend continued in WPI
The annual rate of inflation, based on monthly Wholesale Price Index (WPI), edged up
marginally to (-)4.54% in September with pulses, vegetables and onion turning costlier,
though overall deflationary trend persisted for 11th month in a row. WPI inflation rate was (-
)5% in the previous month and 2.4% during the corresponding month of the previous year. A
small uptick in inflation number was mainly because of the rate of price rise in food items,
which constitute around 14% of the index, rose to 0.7% in the reported month as against
1.1% contraction in a month ago on the back of 36% increase in pulses prices and 65% rise in
the onion prices. Price of fruits and vegetables prices continues to witness declining trend.
July inflation figure revised to (-)4%
On inflation revised front, July inflation figure was revised to (-)4% as compared to (-)4.05%
reported earlier. Build up inflation rate in the financial year so far was 0.28% compared to a
build up rate of 2.61% in the corresponding period of the previous year.
Deflationary trend in WPI
persisted for 11th month in a
row
7
Source: MOSPI
July inflation figure was
revised to (-)4% as compared
to (-)4.05% reported earlier
Inflation in fuel and power
declined by 18% in the
reported month
Economic Outlook – Oct’15
Prices of fuel and power group declines in September
Deflation trend continued in fuel and power group as the global crude oil prices are hovering
near around $50 per barrel on account of oversupply in the global market. Inflation in fuel
and power declined by 18% in the reported month as compared to 16.5% in the previous
month owing to the lower price of aviation turbine fuel, furnace oil, petrol and high speed
diesel. Given the adverse demand-supply situation in the global markets, oil prices are likely
to remain soft going forward.
Snapshot of WPI Inflation
% (YoY) Sep'15 Aug'15 Jul'15 Jun'15 May'15
PRIMARY ARTICLES -2.1 -3.7 -4.0 -0.5 -1.1
Food Articles 0.7 -1.1 -1.2 3.1 2.7
Vegetables -9.5 -21.2 -24.5 -6.8 -5.0
Fruits -5.3 -1.3 -4.5 7.6 6.7
Non-Food Articles 2.6 -0.7 -0.5 1.2 -1.0
FUEL & POWER -17.7 -16.5 -11.6 -8.9 -9.4
Petrol -14.8 -13.3 -11.1 -7.1 -9.2
High speed diesel -28.1 -24.5 -15.9 -9.9 -9.8
MANUFACTURED PRODUCTS -1.7 -1.9 -1.5 -0.8 -0.5
Machine Tools 0.0 0.2 0.3 0.5 0.9
Chemical Products -1.8 -1.8 -1.7 -1.2 -1.2
Metals Alloys -6.7 -7.6 -6.3 -4.9 -4.0
Cement & Lime 0.5 1.9 2.5 5.0 5.2
WPI Inflation -4.5 -5.0 -4.1 -2.1 -2.2
Source: Commerce Ministry

8. Prices of manufactured products declined by 1.7% in September
Inflation in manufactured products declined by (-)1.7% in the month under review as
compared to (-)1.9% contraction in the previous month. Low manufactured products prices
also deepened the pace of disinflation in non-food manufactured products. Core inflation
remained at sub-zero levels for the seventh consecutive month, at (-)1.9% in September
2015, slightly lower than the level in the previous month, indicating a prevailing sluggish
demand in the economy. Among manufactured products, the prices of rubber, metal, leather,
chemicals and textiles declined in the reported month, indicating weak commodity prices
trend in the global market. However, the prices of commodities like cement, non-metallic
mineral, paper & wood and transport equipment products rose during September.
Low manufactured products
prices also deepened the
pace of disinflation in non-
food manufactured products
8
Source: Commerce Ministry
India’s trade deficit during
Apr-Sep FY16 declined
slightly to $67.9 billion as
compared to $72.7 billion in
the same period of previous
fiscal.
Economic Outlook – Oct’15
September trade deficit drops to $10.5 billion
India’s trade deficit narrowed to $10.5 billion in September as compared to $12.5 billion in
the previous month and $14.5 billion in the same month of previous year despite
contraction in exports as imports also declined at brisk pace. India’s trade deficit during
April-Sep FY16 declined slightly to $67.9 billion as compared to $72.7 billion in the same
period of previous fiscal.
0.7
-1.1-1.2
3.1
2.7
-17.7
-16.5
-11.6
-8.9-9.4
-4.5-5.0-4.1
-2.1-2.2
Sep'15Aug'15Jul'15Jun'15May'15
WPI inflation trend (%)
Food Articles FUEL & POWER MANUFACTURED PRODUCTS WPI Inflation
-20.0
0.0
20.0
40.0
60.0
Sep'14
Oct'14
Nov'14
Dec'14
Jan'15
Feb'15
Mar'15
Apr'15
May'15
Jun'15
Jul'15
Aug'14
Sep'14
$billion
Trends in Merchandise Trade
Exports Imports
Oil Imports Trade Deficit
(-)234.1 (-)200.9
(+)161.4
(+)132.9
0
100
200
300
400
500
Apr-Sep'FY15 Apr-Sep'FY16
$billion
Imports Exports
TD - $72.7 b
TD - $68 b
Source: Commerce Ministry

9. Exports decline 24.3% in September due to low global demand
Contracting for the 10th month in a row, India's merchandise exports dipped 24.3% YoY in
September to $21.8 billion, driven by steep fall in shipments of petroleum products, iron ore,
and engineering goods owing to the tepid global demand. The decline in domestic overseas
shipments in September was steepest since March 2015 when the shipments shrunk by
21.1%. Furthermore, the exports during September also came down the average 12 months
exports figure of $23.7 billion. Among the major items of exports, only drugs and
pharmaceuticals grew 9.1% to $1.4 billion, while gems and jewellery, chemicals, engineering
goods and readymade garments contracted by 18.8%, 13.4%, 22.8%, 12% respectively.
Shipments of petroleum products shrank 60.4% to $2.4 billion while that of iron ore declined
by 40.4% to $9.47 million. During the first half of current fiscal, exports declined by 17.6% to
$132.9 billion as against $161.4 billion. We are of the view that domestic exports is likely to
remain subdued in coming month as the demand situation in global economy is expected to
remain sluggish going forward.
The decline in domestic
overseas shipments in
September was steepest
since March 2015
9
Source: Commerce Ministry
Imports of major
commodities like gold and oil
contracted during the month
Contraction in non-oil
imports also reflects the
prevailing sluggish demand
condition in the country
Economic Outlook – Oct’15
Imports fall 25% YoY in September driven by low crude oil inward shipments
Inward shipments of the country too shrank by 10-month higher rate of 25% YoY to $32
billion in September, thus narrowing the trade gap to $10.5 billion. Imports of major
commodities like gold and oil contracted during the month. Oil imports during September
were valued at $6.63 billion, down 54.5% from YoY basis due to the slide in global oil prices.
Oil prices in global market are hovering near $50 per barrel owing to the low demand,
oversupply by OPEC and increasing dependence of developed countries on alternative
energy sources like shale gas. Crude oil prices are likely to remain at a low level in the
coming future. Gold imports also declined by 45.6% in September to $2 billion from $3.78
billion in the same month of 2014. Low yellow metal imports also reduced the non-oil
imports, which declined by 11% to $25.7 billion in September from $28.8 billion in
September 2014. Further, the contraction in non-oil imports also reflects the prevailing
sluggish demand condition in the country. Imports of commodities like chemicals, plastic
material, pearls and precious stones, iron and steel, non-ferrous metals and transport
equipment contracted in September. On collective basis, domestic inward shipments
declined 14.2% to $200.9 billion over Apr-Sep FY16. We expect a further contraction in
Indian exports in coming months owing to the low global oil and commodity prices.
4.4%
-4.3%
5.5%
-3.6%
-10.7%
-16.3%
-19.0%
-14.2%
-20.4%
-15.8%
-10.5%
-20.6%
-24.3%
-30.0%
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
$billion
Trend in exports growth
Exports Growth
20%
20%
13%10%
5%
5%
27%
Top Exports orientated
sectors
Engineering goods Petroleum products
Gems and jewellery Textiles
Pharma Prouducts Chemicals
Others

10. Low imports likely to check trade deficit going forward
Overall we are of the view that domestic exports is likely to remain subdued, however lower
imports of the country is expected to keep trade deficit under check.
10
Source: Commerce Ministry
The seasonally adjusted
Nikkei Services Business
Activity Index declined to
51.3 in September from 51.8
in August, pointing to a slight
and softer expansion of
services output across the
country.
Economic Outlook – Oct’15
Services growth slows in September on poor demand
The Indian services sector, which accounts for around 60% of country’s GDP, eased in
September on account of weaker demand. The seasonally adjusted Nikkei Services Business
Activity Index, based on the survey of around 350 private service sector companies,
declined to 51.3 in September from 51.8 in August, pointing to a slight and softer expansion
of services output across the country. New business work at service providers rose for the
third month in succession during September, but the rate of expansion eased since August.
This growth was attributed to improved marketing strategies. Taking a view of slow new
business growth, Indian service providers maintained employment levels broadly
unchanged in September. The Nikkei India Composite Output Index, comprising both of
manufacturing and services, eased to 51.5 in September from 52.6 in August. Services firm
received relief on inflation front with Input costs faced by services firms decreased in
September for the first time in ten months. Services providers also cut the output prices,
however the reduction was marginal and the first recorded since the financial crisis.
25.3%
4.3%
26.6%
-4.5%
-12.1%
-16.0%
-11.0%
-7.3%
-16.4%
-13.4%
-10.2% -10.0%
-25.4%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
50.0
$billion
Trend in imports growth
Imports Growth

11. Services activity likely to rise over next 12 months
As per the Nikkei India Services PMI survey, services activity is expected to rise over the
coming 12 months as services firms were optimistic for future on the back of favorable
government policies, planned increases in marketing budgets and hopes of better economic
conditions. However, the degree of optimism or Future Output Index in September fell to its
lowest mark in the history of the series.
As per the survey, services
activity is expected to rise
over the coming 12 months
as services firms were
optimistic for future on the
back of favorable
government policies
11
Source: Commerce Ministry
Nikkei India Manufacturing
Purchasing Managers’ Index
(PMI) slipped to a
seven-month low at 51.2 in
September from 52.3 in
August due to the weak
order flow
Economic Outlook – Oct’15
Manufacturing PMI slips to 7-month low in September
Nikkei India Manufacturing Purchasing Managers’ Index (PMI), a headline index designed to
measure the overall health of the manufacturing sector, slipped to a seven-month low at
51.2 in September from 52.3 in August due to the weak order flow. Although the rate of
expansion eased in September, the latest reading signaled expansion in business conditions
as the index remained above the crucial 50 mark for the twenty-third consecutive month
that separates growth from contraction.
Growth of new work moderated to the weakest since June, reflecting challenging economic
conditions on domestic as well as global front. Slow expansion in new businesses and
cautious approach on input costs to protect margins reportedly led Indian manufacturers to
shed jobs in September. Despite the drop in workforce numbers, outstanding business
levels fell for the second consecutive month indicating still sluggish demand in the
economy. Slowdown is evident across the three broad areas of the manufacturing sector
include capital, consumer and intermediate goods sub sectors. The survey further indicated
that owing to low commodity prices, input costs for firms declined in the reported month
and subsequently firms passed the benefit by lowering output prices amid sluggish demand
conditions.
44
46
48
50
52
54
56
Jan'14
Feb'14
Mar'14
Apr'14
May'14
Jun'14
Jul'14
Aug'14
Sep'14
Oct'14
Nov'14
Dec'14
Jan'15
Feb'15
Mar'15
Apr'15
May'15
Jun'15
Jul'15
Aug'15
Sep'15
Nikkei Purchasing Managers' Index (PMI)
Manufacturing Services Neutral line
Source: Markiteconomics

12. Subdued growth in new business dented sentiments
Slow increase in new business during September dented the business sentiments and
manufacturers marginally reduced the headcount to ease the operating cost. This does not
bode well for economy and suggests that manufacturers’ expectations for future output
growth are clouded with uncertainty. Meanwhile, latest interest rate cut by RBI, low input
costs and improving purchasing power of consumers are the positive factors which can boost
the manufacturing output in coming months. Quarterly basis, Manufacturing PMI improved
to 52.1 (avg.) in Q1FY16 from 51.7 in Q4FY15, indicating expansion in output.
Slow increase in new
business during September
dented the business
sentiments and
manufacturers marginally
reduced the headcount to
ease the operating cost
12
The Organisation for
Economic Cooperation and
Development (OECD)
expects India to witness firm
growth
Economic Outlook – Oct’15
India has better growth prospects: OECD
The Organisation for Economic Cooperation and Development (OECD), the Paris-based
think tank, in its latest monthly indicator survey, expects India to witness firm growth.
Composite leading indicators (CLIs), designed to anticipate turning points in economic
activity relative to trend, increased to 99.9 in August 2015 from 99.8 in the previous month.
CLI for India rose by over 1% in August from a year earlier and showed a marginal 0.12% rise
from the previous month, indicating firming growth. India's CLI has been on the rise since
October 2014 and indicated that the momentum is building in the economy. The OECD CLIs
are composite indicators with components that measure early stages of production,
respond rapidly to changes in economic activity, are sensitive to expectations of future
activity or are control variables that measure policy stance.
45
46
47
48
49
50
51
52
53
54
Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16
PMI (Quarterly View)
Manufacturing Services Neutral line
97.6
98
98.4
98.8
99.2
99.6
100
100.4
Aug'13
Sep'13
Oct'13
Nov'13
Dec'13
Jan'14
Feb'14
Mar'14
Apr'14
May'14
Jun'14
Jul'14
Aug'14
Sep'14
Oct'14
Nov'14
Dec'14
Jan'15
Feb'15
Mar'15
Apr'15
May'15
Jun'15
Jul'15
Aug'15
OECD Leading Indicators (CLIs)
Source: OECD
Source: Markiteconomics

13. RBI cuts repo rate by 50 basis points to 6.75%
The Reserve Bank of India (RBI) surprised the market and policy makers by reducing the repo
rate by 50 basis points to 6.75%. Consequently, the reverse repo rate under the liquidity
adjustment facility (LAF) changed to 5.75%. With inflation running at record lows, the RBI, in
its fourth Bi-Monthly Monetary Policy Statement of current fiscal, cut its policy interest rate
to a 4-1/2 year low of 6.75% in order to provide much needed flip to the sluggish demand in
the economy. Keeping the inflation battle at the top of agenda, central bank justified the
bigger reduction, mentioning CPI inflation is likely to remain at 5.8%, below the 6% set target
for January 2016. Marginal Standing Facility (MSF) rate, determined at a spread of 100 basis
points above repo rate, stands at 7.75%, while bank rate also adjusts at 7.75%. Meanwhile,
Cash Reserve Ratio (CRR) was kept unchanged at 4.00% of Net Demand and Time Liabilities
(NDTL) of bank.
The Reserve Bank of India
(RBI) surprised the market
and policy makers by
reducing the repo rate by 50
basis points to 6.75%
13
Source: RBI
Central bank cut its
economic growth forecast
to 7.4% for FY16 from 7.6%
projected earlier
Economic Outlook – Oct’15
7.25% 7.25%
6.75%
6.25%6.25%
5.75%
4% 4% 4%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
RBI's Monetary Policy Stance
Repo Rate Reverse Repo Rate CRR
Policy Backdrop
The RBI has attributed the latest rate cut to moderating inflation which has dropped to a
nine-month low in August. In spite of monsoon deficiency and its uneven spatial and
temporal distribution, food inflation pressures have been contained by resolute actions by
the government to manage supply. Inflation excluding food and fuel or core inflation has
also come off its recent peak. The RBI expects that inflation will go up from September for a
few months as favourable base effects will wane. However, this issue will be offset by
increase in sown area, moderate increases in minimum support prices, prevailing low crude
and commodity prices in the global market.
The RBI indicated that further monetary policy accommodation will be conditioned by the
abating of recent inflationary pressures, the full monsoon outturn, possible Federal Reserve
actions and greater transmission of its front-loaded past actions. On economic growth front,
the central bank mentioned that underlying economic activity remains weak on account of
prevailing global economic slowdown, downturn in Indian agriculture sector due to a series
of weak monsoon, concerns over increase in NPAs of banks and low investments by private
sector due to waning business confidence. Accordingly, central bank cut its economic
growth forecast to 7.4% for FY16 from 7.6% projected earlier.
Source: RBI

14. Indian Economy grows at 7% in Q1FY16
India’s GDP at constant 2011-12 prices expanded by 7%YoY in Q1FY16 as compared to 7.5% in
the previous quarter and 6.7% in the same quarter of previous fiscal. The latest quarter GDP
data came lower the market expectation of 7.4%.
Sector wise, Agriculture sector Gross value added (GVA) stood at 3.66 lakh crore in Q1FY16,
which is 1.9% higher from Q1FY15. GVA of industry sector increased by 6.5% to Rs8.28 lakh
crore in Q1FY16 as compared to Rs7.77 lakh crore in Q1FY15. Among the industrial sector,
manufacturing sub-sector witnessed the highest growth of 7.2% in the reported quarter
followed by construction with a growth of 6.9%. However, mining and electricity segments
recorded a muted growth of 4% and 3.2% in the reported quarter. Among the three broad
sectors of the economy, services sector remained the best performing sector as the sector’s
GVA rose by 8.9% to Rs13.86 lakh crore in Q1FY16 as compared to Rs12.73 lakh crore in the
same quarter of previous fiscal. Trade, repair and hotel segment of services sector grew by
12.8%, while financial, real estate and public administration & defence segments grew by
8.9% and 2.7% in the quarter under review.
Indicating a signs of continued distress in consumption demand, growth in private final
consumption expenditure slowed sequentially to 7.4% in Q1FY16 from 7.9% in Q4FY15.
However, investments demand in the economy as represented by gross fixed capital
formation (GFCF) showed some signs of recovery, with GFCF picked up by 4.8% in the
reported quarter against 4.1% in the previous quarter.
The latest quarter GDP data
came lower the market
expectation of 7.4%
14
Source: MOSPI
GFCF showed some signs of
recovery, with GFCF picked
up by 4.8% in the reported
quarter against 4.1% in the
previous quarter
Economic Outlook – Oct’15
Economic Outlook: India’s economy grew at a slower pace in Q1FY16 compared with the
previous quarter. Although sectoral trends revealed a fragile but uneven recovery with the
GVA at basic prices at 7.1% is higher than GDP at basic prices of 7% which means there has
been no net transfers to the government. Amid easing inflation and subdued growth scenario,
the RBI has recently cut 50 basis points to boost economic growth.
At constant 2011-12 prices (Rs lakh cr) Q1FY16 Q1FY15 YoY Q4FY15 (Gr. YoY)
Agriculture, forestry and fishing 3.66 3.59 1.9% -1.4%
Industry
Mining and quarrying 0.73 0.70 4.0% 2.3%
Manufacturing 4.87 4.55 7.2% 8.4%
Electricity, gas, water supply, uty.services 0.60 0.58 3.2% 4.2%
Construction 2.08 1.94 6.9% 1.4%
Services
Trade, repair, hotels and restaurants 5.14 4.56 12.8% 14.1%
Financial, real estate & profess. Services 5.72 5.25 8.9% 10.2%
Public adm., defence and Other Services 3.00 2.92 2.7% 0.0%
GVA at Basic Price 25.80 24.10 7.1% 6.1%
GDP (GVA+Tax-Subsidies) 27.13 25.35 7.0% 7.5%

15. 15
Macro – Chart Bulletin
5.1%
6.9%
7.3%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
FY13 FY14 FY15
GDP Growth
31.4%
29.4%
28.7%
27.00%
28.00%
29.00%
30.00%
31.00%
32.00%
FY13 FY14 FY15
Gross Fixed Capital Formation (% of
GDP)
Source: NSDL Source: SEBI Source: SIAM
Source: MOSPISource: MOSPISource: RBI
Source: RBI Source: MOSPISource: BSE
Economic Outlook – Oct’15
7.60%
7.65%
7.70%
7.75%
7.80%
7.85%
7.90%
7.95%
8.00%
Jan'15
Feb'15
Mar'15
Apr'15
May'15
Jun'15
Jul'15
Aug'15
Sep'15
10 year GSec yield % (monthly avg.)
-20,000
-10,000
0
10,000
20,000
30,000
40,000
Jan'15
Feb'15
Mar'15
Apr'15
May'15
Jun'15
Jul'15
Aug'15
Sep'15
Net FIIs/FPIs Inflows (Rs cr)
300
310
320
330
340
350
360
Dec'14
Jan'15
Feb'15
Mar'15
Apr'15
May'15
Jun'15
Jul'15
Aug'15
Sep'15
Forex Reserves ($ billion)
-0.4%
-7.3%
2.4%
1.3%
7.0%
-2.1%
-0.5%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
Auto Sales Growth
56
58
60
62
64
66
68
Jun'14
Aug'14
Oct'14
Dec'14
Feb'15
Apr'15
Jun'15
Aug'15
Exchange Rate (USD/INR)
24,000.0
25,000.0
26,000.0
27,000.0
28,000.0
29,000.0
30,000.0
Jan'15
Feb'15
Mar'15
Apr'15
May'15
Jun'15
Jul'15
Aug'15
Sep'15
Oct'15*
S&P BSE Sensex
2.8%
4.9%
2.5%
3.4%
2.5%
4.4%4.1%
6.4%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
Jan'15
Feb'15
Mar'15
Apr'15
May'15
Jun'15
July'15
Aug'15
IIP Trend

16. 16
Satish Kumar Sharma
Research Analyst
satish.kumar@choiceindia.com
[T] 91-022-6707 9999; Ext: 974
_________________________________________________________________________________________
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