IN: PMI Manufacturing Index

Thu Nov 30 23:00:00 CST 2017

Actual Previous
Level 52.6 50.3

The Nikkei India Manufacturing PMI's headline index rebounded sharply from 50.3 in October to 52.6 in November, its highest level since October 2016.

This increase in the survey's headline index was stronger reported output growth, with some respondents citing the impact of reduced sales tax rates for some goods and services. The government's new goods and services tax, introduced in July, is levied at five different rates and administered by a council that has the authority to adjust the rate at which particular goods and services are taxed. This council announced early in November that several products would be taxed at lower rates. Survey respondents also reported stronger new orders and new export orders in November, with the survey's measure of employment increasing to its highest level since September 2012.

Survey respondents again reported tighter margins in November. The survey's measure of input costs growth picked up to its highest level since April but firms reported that competitive pressures made it difficult to pass on these higher costs, with only a "marginal" increase in selling prices.

Data released earlier this week showed India's economy grew 6.3 percent on the year in the three months to September, up from 5.7 percent in the three months to June, and today's data suggests that growth may pick up further in the three months to December. The Nikkei India Services PMI is scheduled for release Tuesday next week, with the Reserve Bank of India holding its policy review on Wednesday. The RBI left policy rates on hold at tis last meeting in October after cutting them by 25 basis points in August.

The Manufacturing Purchasing Managers' Index (PMI) is a joint publication by Markit and the Nikkei media organisation and provides an estimate of manufacturing business activity for the preceding month. The report uses information obtained from a representative sector survey incorporating around 400 companies in eight broad categories. Results are synthesised into a single index which can range between zero and 100. A reading above (below) 50 signals rising (falling) activity versus the previous month and the closer to 100 (zero) the faster is activity growing (contracting).

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'.