October Surprise: High Frequency Indicators Point To Quicker Rebound
Shoppers and pedestrians walk past stalls at the Bhadra Fort market in Ahmedabad, India, on Thursday, Oct. 22, 2020. Photographer: Sumit Dayal/Bloomberg

October Surprise: High Frequency Indicators Point To Quicker Rebound

High-frequency economic data improved in October, with several indicators now at or above pre-pandemic levels. Economists point to pent-up demand, a festive boost and lower new Covid-19 infections as reasons behind the spurt in the activity.

Strong gains in the manufacturing and services PMI, GST collections and core industries are likely to have been led by a combination of festive and pent-up demand, despite fiscal expenditure being rather subdued through the pandemic, HSBC's chief India economist Pranjul Bhandari said.

Over the last few days we have received a number of data releases, which all point to a faster-than-expected recovery, compared to consensus estimates, said Kaushik Das, chief India economist at Deutsche Bank.

The improvement in high frequency growth indicators has been stronger than expected in the recent period, which leads us to be slightly less pessimistic than consensus regarding India’s growth outlook for the second half of FY21.
Kaushik Das, Chief India Economist, Deutsche Bank. 

Manufacturing & Services Activity

The India Manufacturing Purchasing Managers’ Index rose to 58.9 in October 2020—the highest since 2008—from 56.8 in September. A reading over 50 indicates economic expansion.

While growth was led by the intermediate goods category, there were also improvements in the consumer and investment goods sub-sectors, according to the release by IHS Markit, that provides data on PMI. However, firms continued to scale back on employee strength in order to follow social distancing guidelines, the release said.

The services PMI too rebounded in October, reporting its first expansion in eight months. According to surveyed members, the upturn was supported by improved market conditions amid the loosening of Covid-19 restrictions.

Both surveys, however, indicated a slower revival in employment.

Auto Sales

Auto sales continued to stage a recovery in October 2020 as vehicle manufacturers ramped up production and retailers added to existing inventory to meet the festive demand.

  • Maruti Suzuki India Ltd., India’s largest carmaker saw domestic car sales rise 17.9% to 1.24 lakh units. Exports were up 4.7% to 9,586 units.
  • Hyundai Motor India Pvt. Ltd. recorded its highest ever domestic monthly sales of 56,605 units in October, up 13% over a year ago.
  • Bajaj Auto Ltd.’s two-wheeler sales rose 18% in October, with the company clocking its highest ever monthly sales.
  • Ashok Leyland Ltd. on Monday reported 1% increase in total commercial vehicle sales at 9,989 units in October, led by sales of light commercial vehicles.

Power Generation

Electricity generation is likely to have grown significantly by 14% in October on an annual basis, compared to 4.5% in September, according to a research note by Emkay.

Increased economic activity in the country led to an impressive recovery in power demand and generation, reversing the decline seen till Aug’20, the note added.

Foreign Trade

Preliminary merchandise trade data threw up mixed signals.

Exports contracted by 5.4% in October 2020 compared to a growth of 6% in September. Imports contracted by 11.56% compared to a contraction of 19.6% in the same duration.

While exports contracted, non-oil merchandise exports continued to report growth for the second consecutive month, although the pace of the same expectedly moderated following a resurgence of Covid-19 infections in many trading partners, said Aditi Nayar, principal economist at ICRA. The de-growth in imports decidedly narrowed in October 2020, mirroring signs of a revival in domestic economic activity, she added.

E-Way Bill Collections

E-way bill collections rose to the highest levels on record in October, with both intra-state and inter-state collections rising. The improvement in these collections may suggest that supply chain disruptions are easing.

“This rise in demand is being met by some supply-side disruptions easing. In recent notes, we have highlighted that both logistics and labour supply disruptions have indeed softened,” Bhandari said.

GST Collections

GST revenue for September, collected in October, stood at Rs 1.05 lakh crore, according to a statement from the Ministry of Finance. This was the highest in eight months, recording a rise of over 10% on a monthly as well as on an annual basis.

Google Mobility

The Google Mobility Tracker, which looks at movement across different categories, picked up more movement across places such as supermarkets and pharmacies.

Visits to supermarkets and pharmacies was 8% higher than the pre-Covid baseline between Sept. 15 and Oct. 27. Visits to workplaces also showed a pick-up compared to previous months.

Unemployment Rate

The unemployment rate, however, saw an uptick, rising to 6.98% in October, compared to 6.67% in September 2020, according to data by the Centre for Monitoring the Indian Economy.

While rural unemployment rose to 6.9% in October 2020, compared to 5.86% in September, urban unemployment eased to 7.15% from 8.45% in the same duration.


Demand for jobs under the government’s flagship rural jobs program also remained high, suggesting continued disruption in the informal sector.

According to data available on the official MGNREGA website, demand for work by households rose 88.2% year-on-year in October, compared with 71.1% in September. Demand for work by persons rose 92.6% in October, compared with a year ago, from 76.5% in September.

While demand for work remained high, October saw lower supply of works likely due to budget constraints. Supply of work for households rose 53.7% in October compared to a rise of 65.4% in September.

What Economists Are Saying

Economists are cautiously optimistic amid better-than-expected readings.

It remains to be seen whether this momentum outlives the festival-led activity surge, said Sonal Varma and Aurodeep Nandi, economists at Nomura, in a note dated Nov, 2, 2020. “We also remain cautious on the potential reversal of pandemic gains in November-December, as the festive season draws down,” the added.

Bhandari cautioned that funding constraints remain, and could be a drag over the medium term, if banks remain risk averse. At a time reserve money growth is elevated at 14% annually, bank credit growth remains weak at 5.8% in September on an annual basis, she said.

The real test of economic revival, will depend on the strength of demand at the end of the year, once the Diwali-festival demand is behind us, and the health of the banking sector and willingness to expand loan growth. 
Pranjul Bhandari, Chief India Economist & Aayushi Chaudhary, Economist, HSBC
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