Home >Markets >Mark To Market >India’s PMI falls short of EM peers; Maharashtra lockdown adds to risk

Business activity in India’s manufacturing sector lost steam in March, showed latest data from the IHS Markit. The headline purchasing managers’ index (PMI) fell to a seven-month low of 55.4 in March, impacted by subdued growth in new orders. In February, India’s manufacturing PMI stood at 57.5.

A reading above 50 indicates expansion. The index has remained in the expansion zone for the eighth consecutive month.

But that brings little cheer as India has underperformed some key Asian peers who have seen an increase in manufacturing PMI readings in March.

Further, some analysts fear rising caseloads and fresh restrictions, especially in the key state of Maharashtra, will hit recovery in the near term.

India's manufacturing PMI fell in March over February, even as readings of some key emerging countries improved
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India's manufacturing PMI fell in March over February, even as readings of some key emerging countries improved

Darren Aw, Asia economist at Capital Economics Ltd, is of the view that the PMI survey is yet to reflect this ongoing event of rising coronavirus infections.

In a note dated 5 April, he said that given the PMI surveys are usually conducted around the middle of every month, Monday’s release is unlikely to have fully captured the impact of the continued surge in new virus cases over the past couple of weeks.

The Nomura India Business Resumption Index (NIBRI) dropped to 90.7 for the week ending 4 April from 94.6 in the prior week.

This is 9.3 percentage points below the pre-pandemic normal, and the steepest weekly decline since mid-April 2020.

While the near-term impact of the second covid-19 wave has been severe on mobility, analysts at Nomura say that the medium-term impact is expected to be limited.

“Consumer and businesses have adapted to the new normal, lockdowns are likely to be localized, the goods sector should continue to recover and vaccinations are gathering momentum. The lagged impact of easy financial conditions, fiscal activism and strong global growth remain cyclical tailwinds," they said.

For now, services in the discretionary category would continue to bear a higher brunt than manufacturers.

Still, Aw cautions of a broader impact on incomes from the second wave of the pandemic, which could weigh on the manufacturing recovery as well.

An analysis by rating agency Care Ratings Ltd points to a potential loss of gross value added for the manufacturing sector of around 2,931 crore based on a single month of lockdown in Maharashtra.

The PMI survey report continued to paint a grim picture as far as employment is concerned. The survey report said the employment sub-index declined in March.

The rate of contraction was modest, but the quickest since September 2020, added the report.

Consequently, business confidence among Indian manufacturers waned in March.

Meanwhile, spooked by rising infections, Indian stock markets saw a sharp decline on Monday.

Key benchmark indices, the Nifty and the Sensex, ended the day’s session with a fall of around 1.5% each.

For now, most economists are leaving their FY22 growth forecasts untouched.

As Vikas Khemani, founder of Carnelian Capital Advisors, says, “Whether the second wave translates into a serious overhang for the market would depend on whether the restrictions are extended beyond a month."

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