Indian manufacturing ended 2015 on a sluggish note. At 49.1, the sector PMI was down more than a point versus its November reading and below the 50 expansion threshold for the first time since October 2013.
December's decline was heavily impacted by incessant rainfall in Chennai. Output fell at its fastest pace since February 2009 and new business dropped for the first time in twenty-six months despite a modest rise in overseas demand prompted by a weaker rupee. Employment was up but only marginally and the floods saw vendor performance deteriorate by the greatest extent since March 2013.
Input costs rose on the back of higher road and import bills despite lower commodity charges and part of this rise was passed on in the form of increased factory gate prices. However, a 7-month peak on output price inflation was still well short of its long-run average.
December's results were clearly affected by the floods which make for a clouded underlying picture. As such the RBI is likely to treat today's results with care, particularly amidst signs of a slight increase in inflationary pressures. Additional monetary easing is expected this year but next month is probably a little too soon.
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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