India’s largest bank, State Bank of India (SBI) has launched its SBI Composite Index which will predict the direction of Index of Industrial Production (IIP) at least two months in advance based on the growth of bank’s loan book along with other indicators like exchange rates, financial markets, commodity prices, exports and imports and inflation, among others.
The SBI index has been developed on the basis of the bank’s internal loan portfolio, which mirrors the credit demand in the country, and other data sets available in public domain. The index tracks primarily manufacturing activity in the country and also aims at predicting the phase of business cycles for the economy. The index will help policymakers, market participants and the like to identify the turning points in the manufacturing cycles in advance and adjust their investment or marketing strategy.
The Composite Index will capture two components of the manufacturing cycle namely month-on-month and year-on-year growth. Accordingly, two separate indices have been constructed and both the indices are on a scale of 0 to 100. Index above 50 implies growth.