Has the economy bounced off the bottom? If we look at the month-on-month seasonally adjusted HSBC Composite Purchasing Managers’ Index (PMI), which takes into account both services and manufacturing, then growth in the economy has accelerated in the last couple of months. This is not the first time this has happened—the composite PMI showed high growth in January and February as well before slowing in March and April, as the chart shows. This is at odds with the low gross domestic product growth of 5.3% for the March quarter, but then that growth was on a year-on-year basis.

What of the future? While the manufacturing PMI has shown an improvement, analysts have pointed out that forward-looking indicators such as new orders are showing signs of flagging. The services PMI, however, showed new business growth in line with the previous month.

Also See | HSBC composite PMI for India (Graphic)

According to the PMI data, India remains one of the few bright spots in the world economy. The HSBC China Composite Output index, for example, was at 50.6 in June, barely in expansionary territory.

What’s worrying is that the Indian PMI survey for June indicates that inflationary pressures not only continue to be high but accelerated in June, both in the manufacturing and the services sector. The combination of recovering growth
and higher inflation shown by the June Composite PMI could be a factor inhibiting the Reserve Bank of India from monetary easing later this month. Ironically, in an environment where equities are rallying on expectations of monetary easing worldwide, strong growth in India may actually be negative for stocks, because it dampens expectations of a rate cut.

Graphic by Navin Kumar Saini/Mint