Nowcasting sales growth of manufacturing companies in India

Abstract

ABSTRACTThe performance of private corporate sector is used as an important demand indicator for monetary policy making. As these data are received with a lag, assessing and monitoring of corporate sales on a real-time basis poses a significant challenge to policy makers in India. In this context, this article attempts to nowcast quarterly sales growth of Indian manufacturing companies and GDP growth of India using dynamic factor modelling framework. A multiple-level framework through turning point analysis and elastic net structure is used to overcome the overfitting problem during variable selection. Empirical results show improvement in forecast accuracy for one quarter ahead nowcast using 3-factor and 4-factor models over the benchmark model. However, absolute dominance of 3-factor models over 4-factor models was not established. As such, the article has proposed a forecast combination technique to nowcast sales growth of manufacturing companies in India.