Sept manufacturing PMI unchanged from August; MPC may cut rates further

The manufacturing sector continued to tell a muted growth story in September. The IHS Markit purchasing managers’ index (PMI) survey showed that at 51.4, growth in manufacturing activities was unchanged from August — when it posted a 15-month low.

In PMI parlance, a print above 50 means expansion, while a score below that denotes contraction. The September reading is its lowest since May 2018.

“Public policy stimulus could potentially help the sector gain growth momentum, such as another reduction in the benchmark interest rate and the recent announcement of cuts to corporate taxes,” said Pollyanna de Lima, Principal Economist at IHS Markit.

On the prices front, input cost inflation moderated to one of the lowest rates seen in over a decade. Subsequently, there was only a marginal rise in selling prices. This may prompt the Reserve Bank of India’s (RBI’s) Monetary Policy Committee (MPC) to cut 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,” Lima said. The MPC will take a call on the repo rate cut on Friday.

 

Manufacturing growth was worse in the second quarter (Q2) of 2019-20 than that in the first quarter. PMI stood at 51.8 in Q2 versus 52.2 in the previous quarter.

“We’ve seen the gradual slowdown in 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,” said Lima.

India’s economic growth has slumped for the fifth straight quarter to an over six-year low of 5 per cent in the three months ended June, as consumer demand and private investment slowed amid deteriorating global environment. Industrial sector, which also comprises electricity and mining apart from manufacturing, constitutes around 15-16 per cent of the country’s gross domestic product. 

The survey noted that business confidence sank to one of the lowest levels seen in over two-and-a-half years.

Some firms expect a pick-up in demand and investment in marketing to lift output in the year ahead, while others were concerned about competitive pressures and tough market conditions.

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