India’s consumption demand and business activity looked steady in February, although chances of a strong recovery appeared doubtful after a sharp surge in virus cases and the increasing risk of renewed lockdowns. The dial on a gauge measuring so-called animal spirits showed activity cruising at a steady pace for the fifth straight month, with all eight high-frequency indicators tracked by Bloomberg News holding their ground last month. The number was arrived at by using the three-month weighted average to smooth out volatility in the single-month scores.

Holding Ground

Activity in February was built on recent gains

Sources: Bloomberg, IHS Markit, Government of India, Citigroup Global Markets Asia

NOTE: Overall activity reading in generated aggregating the three-month weighted averages of eight indicators against the past thirty months of historical data. The indicators are Markit India Composite PMI, Output Price Index, Order Books Index, Citi Financial Index, Government of India data on exports, industry and infrastructure sectors, and RBI data on demand for loans.

The February reading reflects gains in the economy at a time when virus cases were on the wane. However, the recent weeks have seen the trend reverse, raising the specter of localized lockdowns that could hit consumer mobility and demand in an economy where consumption makes up some 60% of gross domestic product.

While central bank Governor Shaktikanta Das has said he doesn’t see any immediate threat to activity, economists see a bumpy road ahead given that the western Indian state of Maharashtra, which contributes 14.5% to the country’s overall GDP, is among the worst hit and accounts for the majority of cases. The state, which includes Mumbai, has imposed a night curfew to tamp down cases that have been rising since mid-February.

Business Activity

Activity in India’s dominant services sector expanded at its quickest pace in a year in February, helped by an increase in new orders and optimism generated by a roll-out of vaccines. The IHS Markit India Services Purchasing Managers’ Index rose to 55.3 last month from 52.8 in January, with a reading above 50 signaling expansion.