Business activity in Indian manufacturing continued to expand in March. At 51.1, the sector PMI matched its mid-quarter reading and points to another month of modest growth.
That said, production recorded only a minimal gain that was short of February's advance and small enough to leave employment essentially unchanged. More promisingly, new orders posted their second consecutive increase and at the fastest rate since last September. Demand from abroad made useful ground despite the slowdown in the global economy suggesting that the deprecation of the rupee is having a beneficial effect. Backlogs were also up, but mainly due to delayed customer payments.
Inflation developments were weak. Hence, input cost growth slowed to a 5-month low and factory gate prices were cut for the first time in five months, albeit only marginally.
Overall today's results suggest that manufacturing had only a moderately good mid-quarter and with inflationary pressures on the wane, industry will be hoping that the RBI will be cutting interest rates again sooner rather than later.
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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