Indian manufacturing activity picked up a little momentum in July. At 52.7 the sector PMI was 1.4 points above its June reading and at a 6-month high.
The improvement reflected stronger gains in output and new orders with the former incorporating faster growth across all three monitored market groups and the latter fresh rises in both the domestic and overseas markets. In particular, exports saw their best month since February. Backlogs were also up for a second successive month and more quickly than at any time since March. Nonetheless, employment fell slightly although most firms reported no change in headcount from June.
Input costs rose at a slightly faster pace than last time but their annual rate of change was only marginal and well below its long-run average. At the same, time, selling prices were only flat.
Overall the July survey results are moderately positive. However, the weakness of the labour market is an issue that raises a question mark over the outlook for domestic demand and margins remain under pressure. Expectations for no change at tomorrow's RBI policy announcement will not be impacted.
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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