IN: PMI Manufacturing Index

Mon Jan 01 23:00:00 CST 2018

Actual Previous
Level 54.7 52.6

The Nikkei India Manufacturing PMI's headline index climbed from 52.6 in November to 54.7 in December, its highest level in five years. After dropping to its lowest level since 2009 in August 2017, the increase in this index in recent months suggest that Indian manufacturers are adjusting to the government's goods and services tax introduced in July.

This increase in the survey's headline index reflects strong results for all of the key components. Respondents reported in December the fastest pace of growth for output since December 2012, for new orders since October 2016, for new export orders since June 2017, and for employment since August 2012. The survey's measure of business confidence about the 12-month outlook also advanced to a three month high. Respondents did not identify specific factors driving these moves other than "improved underlying demand conditions".

The survey also indicates that price pressures strengthened in December. Respondents reported input costs grew at the fastest pace since April, citing the new sales tax as a contributing factor. Firms also reported some success passing on these higher costs, with selling prices increased for a fifth consecutive month and at the fastest pace in ten months.

The Nikkei India Services PMI is scheduled for release later in the week. Should it also indicate that conditions are strong in the services sector, officials at the Reserve Bank of India will likely keep their main focus on the inflation outlook at their next policy meeting scheduled for early next month.

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'.