Demand growth in oil, which hit an 11-year high in September and October, coupled with rising consumption of power and auto sales point to a strong economic revival that was missing for many years, Swiss brokerage Credit Suisse has said.
“Given the government focus on bottom-up growth rather than top-down, we believe the first signs of recovery are likely to come from broad-based indicators. Good growth in oil, power and auto demand for the past two months points to a reviving economic momentum,” the brokerage’s research analyst, Neelkanth Mishra, said in a report.
Growth in oil demand
In October, oil demand grew at a healthy 17 per cent YoY, and in September it was 15 per cent, or an average of 14 per cent, which is the highest since 2004. “These pickups in demand show that the broad-based economic weakness triggered by the forced fiscal consolidation in Q1 of 2015 seems to be behind us,” said the report.
“Front-loaded stimulus this year by the government seems to be showing up in economic momentum. While the States’ spending data are not available on a monthly basis, it is likely that most are not prepared for a sharp increase in net inflows. Six months into the year they are likely to have picked up spending as well,” Mr. Mishra said. Oil demand has been growing, mainly from transport and industrial sectors. According to Mr. Mishra, lower prices are only an enabler as along with higher oil demand there has been a strong pick-up in requirement for plastics which supports naphtha consumption.
Highest demand for plastics
Demand for plastics has hit a 10-year high at 54 per cent against a 4 per cent fall in the past two years.
A 54 per cent rise in bitumen consumption points to road construction doing well. Demand growth supports restart and ramp-up of Haldia Petrochemicals and explains some of the naphtha growth and strong plastics demand, the report has said.
On the power sector front, the last two months saw consumption jumping 11 and 9 per cent, respectively, as against under-5 per cent expansion in the year-ago period.
Four-wheeler sales
Mr. Mishra said upward trend in four-wheeler sales are supported by the rising popularity of tax aggregators like Ola and Uber which are offering subsidies to buyers.
On the back of festival demands and new launches, car sales grew 21 per cent in October, while two-wheeler sales expanded 13 per cent, after nearly two years of contraction. October sales were the highest in the past two years.
“We believe four-wheeler sales are being helped by Ola, Uber as is evident from the surge in Maruti’s WagonR and Dzire demand from tour operators. While subsidies provided by these apps may not be sustainable, they do act as stimuli in the interim,” said.
