Trimmed inventories plays big part in May PMI decline
India’s manufacturing purchasing managers index (PMI) moderated to 53.4 in May from 54.5 in April and a big part was due to a reduction in the inventories of companies. Japanese brokerage Nomura Securities noted in a report that finished goods inventories fell to a 21-month low as firms preferred to have leaner stock ahead of the implementation of the goods and services tax (GST).
According to Nomura, overall PMI was upbeat and suggests that the manufacturing sector is recovering after the demonetization blow. “We expect the GST-related overhang (postponement of high value consumption demand and paring down of inventory) to continue in June as well.”
South, East to see strong cement capacity addition
Cement capacity utilization in South India remains weak; but, according to a Motilal Oswal Securities Ltd report, in spite of that, the region will see strong capacity addition over the next two years.
Additionally, the eastern region, which was reeling under severe pricing pressure till about three months ago, is also likely to witness supply influx.
“We estimate capacity addition of 31 million tonnes over FY17-19, with the South and the East accounting for nearly 58% of the incremental capacity,” the brokerage house said.
However, despite the huge capacity addition, both these markets are unlikely to see major pricing pressure.
Strong pricing discipline in South India and robust demand, coupled with incremental supplies in the East, are unlikely to translate into a significant price correction, the report added.
Bank loans steer towards short term
Loan disbursals by banks have veered towards the short term over the past several years as companies cut borrowing for capital expenditure.
Among the many signs of slowdown and recovery, one is that the share of short-term working capital loans in total bank loan disbursal has jumped over the past 10 years.
The share of long-term loans has dropped to 53.8% as of March 2016 from 58.8% in March 2006, data from the Reserve Bank of India shows.