India: Manufacturing and services PMIs paint mixed picture of activity in June

Activity in India’s manufacturing sector picked up in June, ending the first quarter of FY 2016 on firmer footing. The manufacturing Purchasing Managers’ Index (PMI), elaborated by Nikkei and Markit, rose from May’s 50.7 to 51.7. The PMI has remained above the 50-threshold that separates expansion from contraction since January, although it is currently at a low level comparted with historical standards.

June’s result reflected an increase in new orders and strong output growth. New export orders rebounded in June, after recording the first fall in 32 months in May. Meanwhile, employment remained broadly stable, while purchasing activity rose. Markit analysts stated that, “Indian factories registered a welcome upturn in growth of both production and new orders mid-way through 2016, but producers clearly remain stuck in a low gear. Rates of expansion remain weak by historical standards, with the PMI average for April-June being lower than that seen in the prior quarter and thereby signaling a softer contribution from the sector to overall GDP during this period.”

Meanwhile, the Nikkei services PMI fell further in June, declining from 51.0 in May to 50.3. The result marked a seven-month low, although the reading is above the 50-threshold that indicates expansion in the sector. According to Nikkei, June’s drop reflected the slowest growth in new business growth recorded in nearly one year. Meanwhile, employment at service producers rose only marginally. Markit analysts commented that, “future expectations dipped to the lowest since February, highlighting concerns regarding the sustainability of the economic upturn.”

FocusEconomics Consensus Forecast panelists see fixed investment rising 6.1% in FY 2016, which is unchanged from last month’s estimate. For FY 2017, the panel expects fixed investment to increase 6.8%.