Domestic Economy Review - December 8, 2012 - Eastern Financiers

- HSBC's India manufacturing PMI picked up in November to 53.7 (vs. 52.9 in October) due to a strong rise in new orders (55.8 vs. 54.9 in October). The improvement in orders was largely led by overseas demand, with new export orders (55.9 vs. 53.6 in October) rising sharply. In response to the pick-up in orders, output growth (55.4 vs. 52.7 in October) picked up significantly and it could have been even better had it not been for power shortages experienced by firms. Despite the constraint on output growth from power outages, backlogs of work (54.1 vs. 56.3 in October) grew less briskly and supplier delivery times (50.8 vs. 49.7 in October) shortened. This partly reflected that firms drew down stocks of finished goods (45.3 vs. 48.3 in October) to meet demand. The improvement in order flows also led manufacturers to increase the quantity (55.3 vs. 53.8 in October) and stocks of purchases (54.4 vs. 52.5 in October). Employment growth (51.4 vs. 52.1 in October) also remained robust, although the pace of hiring slowed a bit during the month.

- In what may dash hopes of economic recovery in the second half of this fiscal, services growth fell to a 13-month low in November after a six-month bottom figure in the previous month, shows an HSBC purchasing managers' index (PMI). Services (including construction) are a dominating sector of the Indian economy, constituting over 60% of GDP. PMI stood at 52.1 points in November against 53.8 points in October, as new business grew at a slower pace, partly reflecting the fewer working days due to Diwali. Reading over 50 points shows expansion, while below it denotes contraction. Even as PMI manufacturing stood at a 5-month high in November at 53.7 points, its services counterpart dragged down the Composite Output Index at a 12-month low of 53.2 points for the month. The survey also indicated that growth in private sector's new business was the slowest in one year.

- Morgan Stanley has raised India's growth forecast for the current financial year to 5.4% from 5.1% projected earlier citing better than expected GDP growth in the September quarter and stabilization in non-agriculture growth indicators. However, the pace of recovery will be slow in view of macro stability challenges such as high inflation, current account deficit and loan-deposit ratio, Morgan Stanley said adding it has kept its GDP projections for FY14 unchanged at 6.2% in line with this view. The key factors that could bring upside to these growth estimates are policy reforms supporting investment outlook; government's effort on fiscal deficit management and rural wage growth.

- India Inc has demanded tax sops on its corporate social responsibilities (CSR) spend. Endorsing the demand by companies, the Corporate Affairs Ministry is likely to take up the matter with the Finance Ministry. The demand came at a time when the Centre is struggling to control its fiscal deficit at targeted level of 5.3% of GDP for 2012-13. Recently, the Cabinet approved the amendments to Companies Bill making it mandatory for companies to spend on CSR or else they are required to explain the reason for not non-spending. The Amendment Bill is yet to be tabled in Parliament.

- The Reserve Bank has signed a Bilateral Swap Arrangement with the Bank of Japan for swapping of the local currencies to address short-term liquidity problems. The BSA would enable both the countries to swap their local currencies (either Japanese yen or Indian rupee) against the US dollar for an amount of up to $15 billion. In the past, both countries had a similar arrangement for an amount of up to $3 billion for a period of 3 years from June 2008 to June 2011. The BSA is activated when an IMF-support programme already exists or is expected to be established in the near future. Nevertheless, up to 20 percent of the maximum amount of drawing could be disbursed without an IMF-support programme.

- Government auditor CAG has pulled up Export Credit Guarantee Corporation for not having proper arrangements with banks to finance exporters resulting in a loss of about Rs 310 crore during the period between 2008-09 and 2010-11. Export Credit Guarantee Corporation of India Ltd (ECGC), which comes under the administrative control of the Commerce Ministry, provides export credit insurance cover to exporters and banks. out of 29 banks to whom whole turnover post shipment (WTPS) cover was issued, the Claim Premium Ratio of 13 banks was more than 200 per cent and resulted in a loss of Rs 309.27 crore during 2008-09 to 2010-11.

- Rising prices don't seem to be deterring Indian consumers during the festive season this year. Consumer confidence hit a 6-month high during November, according to consumer sentiment tracker BluFin. The monthly BluFin Consumer Confidence Index (CCI) shot up 3.4 points to 41.6 in November. This is the highest monthly increase in the BluFin CCI since October 2011. Although the index remains in the pessimistic range, the smart recovery in the past two months is an optimistic sign. In September this year, the index had fallen to 36.7, its lowest level during the year.

Source : Equity Bulls

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