Manufacturing activity slowed in June according to the latest sector PMI survey. At 51.3, the headline index was above the key 50 expansion threshold for a twentieth consecutive month but also 1.3 points below its May reading and indicative of only modest growth.
The PMI's fall was largely due to a smaller gain in output and, more worryingly, the weakest increase in new orders since last September. New export business saw its worst performance so far this year and employment was again broadly flat, in line with the trend seen since early 2014. Purchasing activity was at least up but by less than in mid-quarter and was also short of its long-run average.
Meantime inflations news was relatively subdued with increases in both input costs and factory gate prices historically muted.
The RBI may not be in a hurry to ease policy again but today's sluggish PMI report suggests that there are additional rate cuts further up the pipeline.
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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