SBI launched two Composite Indices to track monthly and yearly economic trends
SBI launched two indices to track manufacturing activity and offer forward-looking economic trends.
The State Bank of India (SBI) on 9 December 2014 launched two indices namely the SBI Monthly Composite Index and the SBI Yearly Composite Index. These indices will primarily track manufacturing and services activity to determine contraction and expansion of the Indian economy.
This is the first time that an Indian bank launched a forward-looking economic index. Earlier to determine the economic trends, markets depended upon HSBC India Purchasing Managers Index (PMI) and HSBC India Services Business Activity.
The SBI Composite Indices have been developed on the basis of the SBI’s internal loan portfolio, which mirrors the credit demand in the country.
Characteristics Feature of the SBI Composite Indices
• The indices will be released every month post-RBI’s credit growth numbers
• It will be published on a monthly basis and track two months in advance the possible trends in official estimates
• Indices will determine the trends of economic activity on a scale of 0 to 100. Index above 50 implies growth over previous respective period and less than 50 will suggest a contraction over respective period.
• It will help policymakers and market participants to identify turning points in the manufacturing cycles in advance and adjust their investment plans or strategy
• The index will also take into account other indicators of economic activities such as consumer spending, mining, interest rates, inflation and exchange rates on a monthly basis.
• The data collection will not be outsourced as is the case with the HSBC data.
Sample prediction for SBI Composite Index
As per the sample prediction of manufacturing activities during October 2006 to March 2013, the SBI Composite Indices was at 71 percent as against PMI at 49 percent.
During April 2013 to September 2014, the SBI Composite Index for manufacturing activities was at 72 percent as against PMI at 50 percent.
SBI Composite Index projects a stronger manufacturing recovery in December 2014.