Manufacturing activity picked up strongly in December with the sector's PMI's climbing more than a point versus its November level to reach a 2-year high of 54.5.
Output rose in line with the headline index and was supported by fresh gains in new orders, their fourteenth in a row. Consumer goods performed especially well and exports saw their fastest growth since April 2011. Improving confidence was signalled by robust input buying which hit a high for its 14-month period of expansion so far and stocks of finished goods rose at a survey record pace. However, employment disappointed with its first, if fractional, decline following back-to-back increases in October and November.
Inflation news was quite tame with input cost inflation easing to its slowest rate in more than five and a half years and factory gate prices rising only very modestly.
Manufacturing looks to have ended 2014 in healthy fashion and expanding new orders point to a decent start to 2015 too. Still, with inflation pressures apparently behaving themselves, financial markets will still be hoping for a cut in RBI interest rates this quarter.
Purchasing Managers' Manufacturing Index (PMIs) is based on monthly questionnaire surveys of selected companies which provide an advance indication of what is really happening in the private sector economy by tracking changes in variables such as output, new orders, stock levels, employment and prices across the manufacturing sectors.
Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic survey data such as the Markit PMIs, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures.
The Markit PMI manufacturing data give a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. And its sub-indexes provide a picture of orders, output, employment and prices.
The HSBC India Manufacturing PMI is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 500 manufacturing companies. The panel is stratified geographically and by Standard Industrial Classification (SIC) group, based on industry contribution to Indian GDP. Survey responses reflect the change, if any, in the current month compared to the previous month based on data collected mid-month. For each of the indicators the 'Report' shows the percentage reporting each response, the net difference between the number of higher/better responses and lower/worse responses, and the 'diffusion' index. This index is the sum of the positive responses plus a half of those responding 'the same'.
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