Green shoots or false dawn?

While the Composite PMI has picked up in the last couple of months, the equity market hasn’t really taken cognizance of it


Graphic: Naveen Kumar Saini/Mint
Graphic: Naveen Kumar Saini/Mint

The accompanying chart shows a disconnect between the Sensex and the Nikkei India Composite Purchasing Managers’ Output index, a survey-based gauge of private sector activity in the economy. While the Composite PMI has picked up in the last couple of months, the chart shows the equity market hasn’t really taken cognizance of it. That is, of course, no doubt partly because of the global market turbulence.

But the PMI data shows that the services sector growth has picked up robustly and the consumption segment of the industry sector is also strong. The business expectations, part of the services PMI, also perked up in January, which augurs well for the future. Earlier, Deutsche Börse’s MNI India Business Sentiment Indicator, a gauge of current sentiment among BSE-listed companies, rose in January 2016 to the highest since October 2015 as domestic orders strengthened. Pollyanna De Lima, an economist at Markit, says: “A strong upturn in new business is an especially positive note from January’s survey, which underpins hopes for further growth of activity across the country’s private sector in the near-term.”

That said, the index has flattered to deceive on earlier occasions and we need to keep our fingers crossed so that this doesn’t turn out to be another false dawn. The problem is, even if the economy is improving, that might not translate into a rally in equities as global uncertainties continue to weigh on market sentiment.

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