The manufacturing PMI fell from December's 2-year high of 54.5 to 52.9 in January. The outturn points to a fifteenth successive month of growth in business activity but at a somewhat slower rate than at year-end.
Output and new orders both saw fresh rises but positive news here still failed to have much impact upon employment as the sector's payroll increased only marginally. As a result, backlogs increased sharply and problems with capacity were noted in a number of industries. Export demand remained robust but growth here was unable to match December which saw its strongest rate since April 2011. Similarly, purchasing activity continued to expand but also at a reduced pace versus last time.
Meantime, inflation developments were quite tame. Hence, although input costs extended the uptrend that began back in April 2009, January's inflation rate was the weakest over the period and provided for just a fractional increase in factory gate prices.
Having seen the RBI deliver a surprise inter-meeting cut in benchmark interest rates less than a couple of weeks ago, expectations are for no change from tomorrow's central bank policy deliberations. Nonetheless, today's data are market friendly and will support hopes that another round of monetary meeting might not be too far away.
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'.