The pace of business in India’s manufacturing sector is getting cold. The seasonally adjusted S&P Global Purchasing Managers’ Index (PMI) fell to 55.1 in September, from 56.2 in August. A reading above 50 indicates expansion. The New Order index fell from a nine-month high of 60.5 in August to 58.6 in September, weighing on the headline index.
Chief Emerging Asia Economist Miguel Chanco said, “The continued moderation in India’s gauge from a high of 56.4 in July is not surprising, given that the survey has largely deviated from hard data, which is now showing steady industrial activity.” shows.” Pantheon Macroeconomics.
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Still, there are a few things that can make investors happy. Input cost inflation continues to moderate. In September, the index, which measures input costs, grew at the slowest pace since October 2020.
According to the PMI survey report, while around 8% of the companies reported a higher purchase price, 91% indicated no change. “This return to cost inflationary pressures helped offset the latest uptick in selling prices, which were the slowest in seven months,” the report said.
Given that sticky and high inflation has been a headache for manufacturers for the past several months, the latest finding has boosted their confidence. The benchmark of business sentiment, the Future Output Index, climbed for the third consecutive month to touch its highest level in seven-and-a-half years.
However, there is a note of caution. With the worsening global economic conditions, the optimism of manufacturers is likely to be tested. Poor global demand and tighter domestic and global financial conditions are seen as a major constraint in India’s export demand. In September, India’s new export orders index rose for the sixth consecutive month and was the fastest growth since May.
“PMI surveys over the past few months have consistently indicated that export orders are stalled. In contrast, trade data for July-August showed weakness in non-oil exports, which fell by 0.5% year-on-year (average) as compared to an average growth of 15.4% in 2022 (January-June),” said Gaura. IDFC First Bank economist Sen Gupta.
Thus, if there is a slowdown in global economic growth, exports may remain weak. “This is likely to counter some of the correction in (India’s) trade deficit due to a reduction in global commodity prices,” he said. Besides, the rupee has seen a significant depreciation against the US dollar recently and the same is likely to be felt, especially on inflation of imported goods.
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