Manufacturing PMI shows lockdown effect, but worst may be behind us

India’s businessmen saw their worst month in April as the lockdown to contain the spread of covid-19 kept consumers quarantined at home.

The IHS Markit Purchasing Managers’ Index (PMI), an early gauge of manufacturing activity, nosedived to 27.4 in April. That is a steep fall from the 51.8 figure in March. A reading below 50 shows contraction.

The acute contraction in PMI was expected as economic activity beyond the permitted essential goods was nil. In fact, PMIs of other economies, such as the US, the UK, and Japan, had already given a glimpse of what lockdown has done to economic activity. The US composite PMI had dropped to 27.4 in April, while that of the UK was down to 12.9. With these markets shrinking, export orders fell at the fastest pace ever since the PMI series was launched.

Perhaps what was more painful for businessmen is not just that demand evaporated, but also that supply chains witnessed disconnections. Mobility restrictions between district borders has rendered a big blow to supply chains. The PMI survey also witnessed staff cuts in several businesses.

“The reduction in employment was the quickest in the survey’s history. There was a similar trend in purchasing activity, with firms cutting input buying at a record pace,” said IHS Markit in its PMI release.

With the latest extension announced last week, the lockdown will now be in force for nearly two months. That said, several relaxations have already been granted by the government. With standalone shops being allowed to operate, small businesses may hobble back to normalcy.

Private businesses have also been allowed to resume work in most areas, with certain restrictions. Nevertheless, social distancing norms will impact efficiency, and employees may return to work with a lag, said Jefferies India Pvt. Ltd in a note. “Manufacturing should ramp up only gradually as three-four weeks of inventory exists in the system.”

Radhika Rao, economist at DBS Bank Ltd, wrote in a note: “There might be an early burst in consumption due to pent-up demand and inventory restocking needs by manufacturers.”

The demand revival, too, will be gradual. Despite the expected pain in the economy and the uncertainty that covid-19 has given rise to, stock markets have been buoyant through April. Perhaps the weak data has now begun to sink in as benchmark indices fell more than 5% on Monday.

However, as stock markets look far ahead than policymakers, the hope of a revival will be enough to make the indices bounce back in the coming days.