Home / Markets / Mark To Market /  Manufacturers’ confidence may fizzle out on weak global macros

The business momentum in India’s manufacturing sector is cooling off. The seasonally adjusted S&P Global Purchasing Managers’ Index (PMI) fell to 55.1 in September from 56.2 in August. A reading above 50 indicates expansion. The New Orders Index fell from a nine-month high of 60.5 in August to 58.6 in September, weighing on the headline index.

“The continued moderation in India’s gauge from the high of 56.4 in July is not surprising, given that this survey has deviated substantially from the hard data, which now show industrial activity stagnating, at best," said Miguel Chanco, chief emerging Asia economist, Pantheon Macroeconomics.

A mixed bag
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A mixed bag

Even so, there are some things that can cheer investors. Input cost inflation continues to soften. In September, the index measuring input costs rose at the slowest pace since October 2020.

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According to the PMI survey report, while around 8% of companies reported higher purchasing prices, 91% signalled no change. “This retreat in cost inflationary pressures helped curtail the latest upturn in selling prices, which was the slowest in seven months," said the report.

Given that sticky and high inflation has been a headache for manufacturers for the past many months, the latest finding has given their confidence a boost. Rising for the third consecutive month, the Future Output Index, a gauge of business sentiment, touched its highest level in more than seven-and-a-half years.

However, there is a note of caution. The optimism of manufacturers is likely to be put to test with global economic conditions deteriorating. Poor global demand and tighter domestic and global financial conditions are seen as key dampeners to India’s export demand. In September, India’s New Export Orders Index rose for the sixth month in a row and the increase was the fastest since May.

“Over the last few months PMI surveys have consistently indicated that export orders have held up. In contrast, merchandise trade data for July-August showed weakness in non-oil exports, which fell by 0.5% year-on-year (average) compared to growth of an average 15.4% in 2022 (January-June)," said Gaura Sen Gupta, an economist at IDFC First Bank.

Thus, if there is a slowdown in global economic growth, exports may remain weak. “This is likely to counter some of the improvement in (India’s) trade deficit because of reducing global commodity prices," she said. Besides, the rupee has seen a steep depreciation against the US dollar lately and its aftermath is likely to be felt, especially on inflation of imported goods.

Elsewhere in Mint

In Opinion, Ajit Ranade argues a high upswing in business or investment cycle is unlikely in the near term. Anjani Trivedi writes why venture capitalists looking to put their money to work should keep an eye on India. Pradeep S. Mehta tells why courts should appoint economists and finance experts. Long Story draws chip-making lessons for India from East Asia.


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