IN: PMI Manufacturing Index

Wed Jan 31 23:00:00 CST 2018

Actual Previous
Level 52.4 54.7

The Nikkei India Manufacturing PMI's headline index fell from a five-year high of 54.7 in December to 52.4 in January. Despite the fall, the index remains close to the level recorded in November and well above those prevailing over the prior six months, suggesting that conditions in the manufacturing sector remain solid at the start of the new year.

This fall in the survey's headline index relative to December reflects weaker reported growth in both output and new orders, while the survey's measure of employment growth also moderated. Respondents, however, reported new export orders grew in January at the fastest pace since September 2016 and remain slightly positive about the twelve-month outlook.

Input costs were reported to have grown in January at a rate similar to the eight-month high recorded in December, with higher raw material prices cited as the main factor. Respondents reported this led to some pressure on their margins, with selling prices increased only marginally.

The Nikkei India Services PMI is scheduled for release at the start of next week, two days before the Reserve Bank of India's policy meeting. The inflation outlook will likely remain the main focus for officials at this meeting.

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'.