On the inflation front, while the rise in input costs moderated, output prices fell for the first time since May 2013
According to the HSBC PMI, manufacturing activity eased in April, led by moderation in both output and new orders. This weakness seems to be domestically driven as growth in foreign demand remained firm.
Meanwhile, as expected, deflationary pressures resurfaced as both the input and output price components fell sharply after spiking in March. Overall, we see room for a 25 bps policy rate cut when the RBI meets for its scheduled meeting in June, HSBC Global Research said.
Facts
HSBC's India manufacturing PMI moderated (51.3 vs 52.1 in March), as both output and new orders expanded at a slower rate.
Deflationary forces came back into play after last month's spike in both input prices (51.6 vs 55.1 in March) and output prices (49.7 vs 51.0 in March).
Implications
Overall weakness in growth
Growth in the manufacturing sector eased at the start of the first quarter of this fiscal year. The weakness emanated from a slower rate of increase in both output and domestic new orders. Export orders remained firm despite trade data suggesting sequential declines over the last four months. However, robust export performance was not sufficient to counter weak domestic demand and overall growth in new orders fell quickly.
The silver lining to the otherwise weak reading was that capital goods saw the highest growth among the three broad categories. This might be indicative of a long-awaited upturn in the country's capex cycle on the back of the resolution of stuck investment projects.
Further, the order-to-inventory ratio, an indicator of future manufacturing activity, improved marginally (1.03 vs 1.00 in March). However, this does not bring much cheer for the IIP reading as the increase was led by finished stocks falling faster than the slowdown in new orders.
The PMI reveals interesting information on supply constraints in the economy. The negative correlation between output and suppliers delivery times over the last few years suggests that when manufacturing output increases, vendors slip on delivery timeliness. For April, we saw a decline in output and an improvement in vendor timeliness.
Deflationary pressures intensify, led by weak demand
On the inflation front, while the rise in input costs moderated, output prices fell for the first time since May 2013. Details from the survey suggest that firms offered discounts in an effort to revive new orders. Additionally, there was some evidence of pass through of lower input costs to consumers.
With activity remaining weak and inflation slowing, we expect the RBI to cut the policy repo rate in June. While the risk of poor monsoons remains a source of uncertainty for inflation developments later in the year, food prices are currently on a softening trend.
Meanwhile, as expected, deflationary pressures resurfaced as both the input and output price components fell sharply after spiking in March. Overall, we see room for a 25 bps policy rate cut when the RBI meets for its scheduled meeting in June, HSBC Global Research said.
Facts
HSBC's India manufacturing PMI moderated (51.3 vs 52.1 in March), as both output and new orders expanded at a slower rate.
Deflationary forces came back into play after last month's spike in both input prices (51.6 vs 55.1 in March) and output prices (49.7 vs 51.0 in March).
Implications
Overall weakness in growth
Growth in the manufacturing sector eased at the start of the first quarter of this fiscal year. The weakness emanated from a slower rate of increase in both output and domestic new orders. Export orders remained firm despite trade data suggesting sequential declines over the last four months. However, robust export performance was not sufficient to counter weak domestic demand and overall growth in new orders fell quickly.
The silver lining to the otherwise weak reading was that capital goods saw the highest growth among the three broad categories. This might be indicative of a long-awaited upturn in the country's capex cycle on the back of the resolution of stuck investment projects.
Further, the order-to-inventory ratio, an indicator of future manufacturing activity, improved marginally (1.03 vs 1.00 in March). However, this does not bring much cheer for the IIP reading as the increase was led by finished stocks falling faster than the slowdown in new orders.
The PMI reveals interesting information on supply constraints in the economy. The negative correlation between output and suppliers delivery times over the last few years suggests that when manufacturing output increases, vendors slip on delivery timeliness. For April, we saw a decline in output and an improvement in vendor timeliness.
Deflationary pressures intensify, led by weak demand
On the inflation front, while the rise in input costs moderated, output prices fell for the first time since May 2013. Details from the survey suggest that firms offered discounts in an effort to revive new orders. Additionally, there was some evidence of pass through of lower input costs to consumers.
With activity remaining weak and inflation slowing, we expect the RBI to cut the policy repo rate in June. While the risk of poor monsoons remains a source of uncertainty for inflation developments later in the year, food prices are currently on a softening trend.
