The stock market, at a new high for the year, shows no signs of worrying about the monsoon. Even the BSE FMCG index that tracks share prices of home and personal care companies that service large rural markets is up 18.75 in the last month, while the BSE Auto index is up a huge 29.6%.
And why not? The Markit Purchasing Managers’ Index (PMI) for manufacturing for July was at 55.3, the same level as in June, which means that expansion is continuing at the same pace as in the previous month. The new orders index, an indicator of future demand, was at 59.1 for July, even higher than the 58.56 in June.
At the corporate level, Maruti’s domestic sales in July were higher by 27% compared with a year ago, much higher than the 9.5% year-on-year (y-o-y) rise in domestic sales in June.
Tata Motors’ medium and heavy commercial vehicles sales went into positive territory in July, up 6% y-o-y.
Large parts of the global economy are showing signs of expansion in manufacturing after a long period of contraction. Japan’s manufacturing PMI for July showed expansion (a reading above 50) for the first time in one and a half years. In China, the PMI data continues to show expansion in manufacturing. In the UK, the PMI for July was at 50.8, the highest reading since March 2008. The new orders index was even higher, indicating the recovery is likely to be sustained.
But the eurozone continued to contract, albeit at a reduced pace, with the manufacturing PMI at 46.3. Nevertheless, the signs are clear: the global economy is on the road to expansion.
That should be good news for our beleaguered exporters, with merchandise exports down 27.7% in June, not much of an improvement from the 29.2% y-o-y fall in May. But the non-oil import data seems to indicate an improvement. Non-oil imports fell 16.5% y-o-y in June, compared with 25.4% in May.
A big reason for the negative figure, though, is higher commodity prices last year; so it’s possible that the improvement in June was at least partly due to higher commodity prices too.
But with all the other indicators pointing to a recovery, it’s no wonder the markets are on a tear.
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