Indian manufacturing activity expanded again in August, but at a slower pace than in July. The sector PMI weighed in at 52.3, still comfortably on the right side of the 50 growth threshold but down 0.4 points from the 6-month high recorded at the start of the quarter.
August's drop reflected a deceleration in output, new orders and stocks of purchases. The growth of production was below its long-run average and the cooling in new business came via smaller gains in domestic and overseas markets alike. Moreover, employment only stagnated while delivery times were essentially unchanged and backlogs declined. However, it was not all bad news as efforts to replenish diminishing stocks saw purchasing activity expand at its fastest rate so far in 2015.
Nonetheless, prices were soft. Hence, input costs were down more sharply than in any month since March 2009 and factory gate charges were reduced for the first time since April.
Today's report suggests that, following a less than sparkling performance in the second quarter, manufacturing continued to expand at a relatively sluggish pace in the current period. Accordingly, with inflation pressures also on the, wane there is nothing here to dent rapidly rising hopes for another RBI cut at the end of the month.
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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