India beats PMI peers, but is yet to impress

For the 17th consecutive month, the headline PMI was in expansion territory and above the long-term average of 53.7. With this, India continues to buck the weak trend seen in other Asian countries. The Manufacturing PMI for the Association of Southeast Asian Nations (ASEAN) slowed further to 50.7 in November from 51.6 in October. China’s Caixin Manufacturing PMI remained in contraction territory for the fourth consecutive month in November.

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Broadly speaking, the November India manufacturing PMI data is good news, but economists point to differences between the PMI survey findings and the actual data. “We are still putting very little stock in the predictive power of these activity metrics, as they continue to troubling with general stability in the tough industrial production numbers,” said Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics.

Hence, investors should not be too impressed right now. Gaura Sen Gupta, economist at IDFC First Bank, said the PMI survey indicated continued expansion in the export order book, a sharp contrast to the weakness seen in non-oil exports over the past few months. India’s new export orders factor fell to 56.3 in November from 56.5 in October, but is still high, given the slowdown in global demand seen by peers.

Encouragingly, however, the softening trend observed in the PMI’s input cost inflation is in line with the actual data. Input cost pressures for Indian manufacturers were weakest in 28 months and the reading is well below the long-term average, said the PMI survey report.

“This indicates that the pass on of input cost increases by producers to consumers is likely to be low,” Sen Gupta said. This can be felt in the core consumer price index inflation, he added.

In short, Indian manufacturers were confident that demand would remain strong in the coming 12 months, leading to an increase in production volumes. Thus, the business sentiment has reached its highest level in nearly eight years, said the survey report.

Meanwhile, the release of November Manufacturing PMI data kept the stock markets upbeat. US Federal Reserve Chairman Jerome Powell said on Wednesday that investors were relieved to see the prospect of a small rate hike as early as December.

The meeting of the Monetary Policy Committee of the Reserve Bank of India (RBI) is scheduled to be held on 7 December. Following Powell’s latest comments, the RBI’s decision will be closely watched.

India’s inflation, measured through the Consumer Price Index and Wholesale Price Index, declined in October and is expected to ease further. According to Thamashi D’Silva, assistant economist at Capital Economics Ltd, a 25 basis points hike in the repo rate in its meeting next week should give the monetary policy committee enough reason to slow down the pace of tightening. One basis point is 0.01%. “Going forward, the tightening cycle is likely to taper off by early 2023,” de Silva said.

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