Home / Market / Mark-to-market /  PMI: Manufacturing remains in doldrums, revival hopes hinge on policy stimulus

Business activity in India’s manufacturing sector showed no sign of further improvement in September. Yet again, manufacturers were hit by subdued demand conditions domestically and externally. As a result, they had to limit production, lower inventories and reduce input buying.

The headline seasonally adjusted IHS Markit India Manufacturing Purchase Managers Index (PMI) stood at 51.4 in September, unchanged from August. Also, the growth rate in September and August was the slowest since May 2018, according to the survey report. A number above 50 indicates expansion, below that threshold signals contraction.

Painting a further grim picture was the new export orders sub-index. It moved closer to stagnation, with September seeing only a fractional upturn in international sales, the weakest in the current run of growth.

All this took its toll on its business outlook and business confidence sank to one of the lowest levels seen in over two-and-a-half years.

Commenting on the latest survey results, Pollyanna de Lima, principal economist at IHS Markit, said: "We have seen the gradual slowdown in the manufacturing sector conditions continue in the second quarter of fiscal year 2019-20, with the PMI average for the quarter at its joint lowest since the same period in 2017.

"In September alone, forward-looking indicators such as business confidence and quantities of purchases were down, suggesting that companies were bracing themselves for difficult times ahead.

"That said, public policy stimulus could potentially help the sector gain growth momentum, such as another reduction in the benchmark interest rate in August and the recent announcement of reductions in corporate tax rates.

"In light of the weak results for economic growth and muted inflationary pressures signalled by the PMI data, we expect to see further monetary easing in the months ahead."

Meanwhile, after the government’s corporate tax cut bonanza, expectations are that the Reserve Bank of India (RBI) will oblige the market with a modest interest rate cut of around 15 basis points (bps) on 4 October. One basis point is one hundredth of a percentage point.

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