Stable PMI hints India's GDP growth has bottomed out, says Nomura

Leading brokerage house Nomura today said the manufacturing PMI, which in September remained stable at 52.8, shows the worst for Indian economy is over, but warned that a V-shaped recovery is way off.

According to the latest data released by HSBC's purchasing managers' index (PMI), the manufacturing PMI growth held steady in September at 52.8, supported by faster output growth and rising export orders.


The September manufacturing PMI-a measure of factory production-at 52.8, same as in August, points to a significant improvement in the key sector which witnessed the weakest growth rate in nine months in August. An index reading below 50 indicates contraction.

"The manufacturing PMI has been consolidating at the 52.8/52.9 level for three months now. This is in line with our proprietary composite leading index for India, which suggests that the economy is bottoming out and should begin to improve.

However, we do not expect a V-shaped recovery like 2009 due to weak global demand," Nomura said in a note. A stable PMI in September shows that both external and domestic demand is improving. In September, the output sub-index improved to 53.2 from 52.7, new orders rose to 54.4 from 54.3.

Export new orders index rose to a four-month high of 53.8 from 49.2, rising above the 50-level for the first time since June, Nomura noted. However, the brokerage house warned that given rising orders, there is an intended inventory accumulation: both raw material and finished goods inventory rose much more than the rise in new orders, leading to a fall in the new orders-to- inventory ratio to 1.03 from 1.06 in August, suggesting a risk if the expected demand pickup does not materialise.

On the price front, the input price sub-index rose to a four-month high (62.3 from 60.7) reflecting higher global commodity prices and hike in diesel prices. Encouragingly, the output price index moderated to a 6-month low (56.8 vs 59.1).

"We believe that GDP growth is bottoming out and we should see a marginal rise in the coming quarters. Output prices have eased in September, but with input cost pressures again on the rise and demand stabilising, the risk of a pass- through remains," Nomura concluded.


Updated Date: Dec 20, 2014 13:17 PM