Macro Insights - Commercial Vehicles Growth GDP Growth Correlation


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CV Sales Growth is fairly correlated with GDP Growth, with the last 20 year correlation standing at 30%. Hence, a lot can be made out looking at CV sales growth. Further, CV sales are a lead indicator for predicting future GDP growth.


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Edel Investment Advisors Macro Insights : Correlation between CV sales growth & GDP growth Da t e : 22 M a r ch 2013 C o mm e r ci a l V ehi cl e s (C V ) Sa l e s a n d e c ono my Commercial Vehicle (CV) industry is the lifeline of an economy. About two-thirds of goods in the country move via road. CV Sales Growth is fairly correlated with GDP Growth, with the last 20 year correlation standing at 30%. Hence, a lot can be made out looking at CV sales growth. Further, CV sales are a lead indicator for predicting future GDP growth. H i st o r i c e v i den c e o f C V cy c l e w ea k ne ss a n d l en g th o f w ea k ne ss As evident in the above table, there have been 5 major instances in the past 20 years where CV sales have de-grown on a stretch. Avg. downturn has been around 10 months with a maximum stretch of 18 months. Past data gives us some idea on how long a weak economic environment can persist. Also, it tells us the extent of possible re-bound in economic growth post bottoming out of CV cycle. Towards this regards, we find that post CV sales have bottomed out; GDP growth over the next 12 months has on an average been 36% higher than the month in which CV sales have bottomed. P a g e 1 D e t a il s A u g - 92 O c t - 96 O c t - 98 M a y - 01 Jun - 09 Av e ra g e CV s a le s l a s t m o n t h o f d e -g ro w t h i n c ycl e - 10% -9% - 14% - 21% - 15% -14% GD P g ro w t h at botto m o f CV cycl e 3% 8% 5% 4% 5% 5% GD P g ro w t h a fte r 1 ye ar 5% 6% 8% 5% 9% 6% % g ro w t h i n GD P si n c e CV cycl e b o tt om e d o ut 78% - 27% 42% 15% 72% 36% Number of months of CV de-growth Apr-92 to Aug-92 Jul-96 to Oct-96 Apr-97 to Oct-98 Jun - 00 t o M a y - 01 Aug-08 to June-09 Sep-12 t o Present Average 5 months 5 months 18 months 11 months 11 months 5 months and counting… 10 months

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Ri gh t n o w , I nd ia is f a ci n g t re m en d o u s w e ak n ess o n t h e g r o w t h f r o n t, a n d in li n e with th i s CV sales h a v e b e e n d e - g r o wing si n ce Se p t e m b er, 20 1 2 (5 m o n ths o u t o f 6 )… If we g o b y h ist o r i c s t a nd ar d s, the CV d e - g r o w t h can last a n o ther 5 mo n ths o r s o … p o st which we can see a g ra du al rec o v e ry in ec o n om ic acti v i t y . Ass ign i n g a h is t o ric 3 6 % h i gh er g r o w t h t o b o t t o m o f CV c y c l e G D P g r o w t h ( a ssum e d t o b e 5 % ) , G D P g r o w t h f o r the 1 2 m o n ths b egi nn i n g Se p t e m b er, 2 0 1 3 c o u ld be 6 .8% ( 5 % * 1 . 3 6 x). Whe t he r w e r eal iz e t he se le v e l s o f G D P g r o w th o r n o t, o n l y t i me w i l l tel l … P a g e 2

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