There’s hope — big hope — in data, that industrial activity may be back to a decent thrum.
The purchasing manager’s index, or PMI, which is a lead indicator of manufacturing activity, rose from 54.2 in December to 57.5 in January, the fastest pace in eight months as output and orders increased.
A PMI reading above 50 indicates economic expansion.
“Panelists commented that a general improvement in demand and market conditions had led to the latest rise in new order volumes,” HSBC, which conducts the survey across countries, said on Wednesday.
The PMI index is based on data compiled from monthly replies to questionnaires sent to purchasing managers in over 500 manufacturing companies.
“The solid demand from clients led manufacturing companies to increase stock of both finished goods and purchases, but it also kept inflation pressures firmly in place, with neither input and output price inflation showing any signs of abating,” said Leif Eskesen, chief economist for India & Asean at HSBC.
However, it’s too early to say if the economy has rebounded, said experts.
“There has been a pick-up in output growth in certain sectors, led by drop in prices and discounts. With state elections round the corner, there would have been certain demand creation exercise also. It’s too early to call it a rebound as there’s still uncertainty about investment-led growth and how the Budget will pan out,” said Dhananjay Sinha, co- head, institutional research, economist and strategist at Emkay Global Financial Services.
Sudhakar Shanbhag, chief investment officer at Kotak Mahindra Old Mutual Life Insurance, agrees. “From a growth point of view, the PMI is a lead indicator, but one is still not in a position to say growth will be significantly higher for the next financial year,” he said.
The HSBC survey also points to the fact that core inflation continues to remain high and this may deter the Reserve Bank of India from cutting interest rates soon.
While there are glimmers on the macro side, at the stock market level, it’s another story altogether.
“The monetary easing in Europe is creating a wave of liquidity. There is a large amount of money coming in due to this. An expected second round of easing in February could also be a significant trigger,” said Shanbhag.
The Sensex gained 107.03 points, to close at 17,300.58 on Wednesday, while the Nifty ended at 5235.70, well above its 200-day moving average of 5205.
Going ahead, experts see budgets and the earnings season as major domestic triggers to watch out for.
“The state elections and their impact on the current government as well as budget pronouncements would be closely watched,” said Shanbhag.
“The Budget is likely to a tough one with expectations of increase in taxes and this will have its impact on demand. Also we have seen a fall in topline growth to 17% levels of companies, which may lead to further moderation in the coming quarters. This would impact the profit numbers as well,” said Sinha.
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