PMI growth upbeat, but challenges persist
Economic activity in India continues to be robust. The seasonally adjusted headline HSBC Flash India Composite PMI output index rose to a near 14-year high of 62.2 in April from 61.8 in March. The composite index is a weighted average of manufacturing and services business activity index. A reading above 50 indicates expansion.
Manufacturing PMI was 59.1 in April, the same as March, and services PMI rose to 61.7 from 61.2 in March. The expansion was due to demand from domestic and foreign clients, say participants.
The composite new export orders index rose at the fastest pace since the series started in September 2014. Coming on the back of global economic weakness and sticky inflation, this means Indian businesses could give more value for money to global customers.
The manufacturing output index, a sub-index within manufacturing PMI, stayed at 63.3 in April, almost the same as March and up from 57.2 in January. Manufacturing activity is supported by better delivery time.
In fact, International Monetary Fund (IMF) economists lauded India’s emphasis on capital expenditure (capex) in building airports, roads, railroads and so on. Improvement in business activity has also increased hiring and job creation with the manufacturing sector increasing its workforce at the highest rate in the last oneand-a-half years.
For India, manufacturing sector growth is critical to provide employment and wean people away from low-productivity agriculture. The ‘demographic dividend’ hasn’t paid off yet.
Nonetheless, the continued strong readings in April, despite the uncertainties in West Asia and volatile crude oil prices, show India’s resilience. Although India is not immune to downside risks, its growth prospects seem relatively bright. For instance, the IMF has raised India’s FY25 gross domestic product (GDP) growth projection to 6.8% from 6.5% in January.
That said, geopolitical uncertainties and their impact on inflation as well as potential disruption in trade can weigh on India’s growth momentum.
The PMI indicates higher prices being charged by producers due to high demand. While this bodes well for company margins, it could be a sign of overheating
THE expansion is due to buoyant demand from both domestic and external clients
and validates the Monetary Policy Committee’s decision to not cut rates yet.
After all, a rate cut could spur demand and increase inflation. More worryingly, despite increase in new business, pressures on capacity are mild, which means private sector capex revival is elusive.
Moreover, crude oil prices have shown significant volatility. With India being a net oil importer elevated oil prices
Mark to Market writers do not have positions in the companies they have discussed here