Festival demand underpins animal spirits in October

Festival demand underpins animal spirits in October

The steady pace from a month ago will help the economy alter course, after output likely posted its second straight quarter of contraction in the July-September period. Credit: Bloomberg Photo

By Anirban Nag

India’s economy showed more signs of a recovery taking hold in October, increasing the likelihood it will exit a pandemic-induced recession in the final quarter of this year.

Demand during the festival season helped boost three of the eight high-frequency indicators tracked by Bloomberg News last month, while three were unchanged and two deteriorated. That kept the needle on a dial measuring so-called ‘Animal Spirits’ steady at 5 -- a level arrived at by using the three-month weighted average to smooth out volatility in the single-month readings.

The steady pace from a month ago will help the economy alter course, after output likely posted its second straight quarter of contraction in the July-September period. Data due Nov. 27 will probably show gross domestic product declined 8.7% last quarter from a year ago, according to a Bloomberg survey. That, according to the central bank, will put the country on track for a historic “technical recession.”

Here are details from the dashboard:

Business Activity 

Activity in India’s dominant services sector expanded in October for the first time in eight months. The Markit India Services Purchasing Managers’ Index climbed to 54.1 last month, the highest since February’s 57.5, amid renewed increase in new work orders with business optimism also rising. It was also the sixth straight month of gains for the services gauge after hitting a record low of 5.4 in April.

Manufacturing activity continued to expand too, with the purchasing managers index rising to 58.9 -- the highest reading since May 2010, according to IHS Markit. This helped the composite index climb to 58 from 54.6 in September. Both manufacturing and services sectors witnessed broad price pressures, which will likely keep the inflation-targeting central bank from resuming interest-rate cuts next month.


Exports lost some momentum last month as a second wave of Covid-19 infections started to hit the global economy. While shipments of drugs and pharmaceuticals along with farm and textiles helped, gems and jewellery, electronic and engineering goods were a drag. Imports remained weak on an annualized basis, but showed improvement from a month earlier as domestic economic activity continued to normalize, economists said.

Consumer Activity

Passenger vehicle sales, a key indicator of demand, rose 14.2% in October from a year ago ahead of India’s festival of lights -- Diwali. Retail sales too showed signs of picking up, even though they were nearly 60% below the year-ago level, according to ShopperTrak.

Demand for loans remained subdued. Central bank data showed credit grew just about 5% in the second half of October from a year earlier, slightly lower than 5.2% in the previous month, and well below the near 9% rates seen a year ago. Tighter liquidity conditions eased a tad in October, with central bank intervention in the foreign exchange market boosting some of the cash surpluses in the banking sector.

Industrial Activity

Industrial production rose 0.2% in September from a year earlier. While production of capital goods declined 3.3% from a year earlier, consumer durables and non-durables rose 2.8% and 4.1% respectively.

Although output at infrastructure industries shrank 0.8% in September from a year ago, it was well above the revised 7.4% decline seen in August. The sector, which makes up 40% of the industrial production index, had contracted by a record 37.9% in April. Both data are published with a one-month lag.

--With assistance from Don Ong.