8 reasons why the economy looks stronger

Mfg PMI stable fourth month in row, suggests slowdown may have bottomed out

Markets have moved up sharply since the government announcement a series of measures. While many have commented that the markets have moved far ahead of the fundamentals, data points show that the economy is turning, slowly but surely.

In a report by JP Morgan titled ‘Is Indian industry turning the corner?’ the broking firm has said that data flow in India may finally be turning constructive. A number of co-incidental variables seem to be simultaneously suggesting that industrial activity has bottomed out and is possible on an upswing.

Following are 8 reasons why JP Morgan feel Indian industry is turning the corner

1. For the fourth consecutive month, India’s manufacturing PMI remained stable, suggesting industrial slow down may finally have bottomed out
2. PMI data details show that while output have fluctuated, new orders have gradually moved higher for the second consecutive month.
3. While export orders saw a pickup in September, October growth was led by domestic order growth
4. Inventories have plunged sharply in October from 52.8 to 48.3 as a result new order to inventory ratio has touched a six month high. This is a reliable indicator of IP growth (ex capital goods) and therefore bodes well for pickup in IP in coming months
5. Core sector IP growth has been fasted in the last seven months indicating that overall IP numbers are expected to be better
6. The worst may seem to be over on the export front, with new order growth in September arresting the falling trend  and October sustaining the momentum
7. Pickup in car production and sales is encouraging for a domestic standpoint. Initial numbers for October suggest pick up seems to be sustaining
8. There has been an unexpected drop in input and output prices, pushing it towards two year low in the October PMI.

If sustained this could be significant because manufacturing output prices within the PMI are a reliable lead indicator of core WPI.

There is however, a caveat in the report. Any pickup in industrial growth based on the above mentioned parameters is likely to be modest. A pickup in IP growth will eventually need growth in capital goods sector.