India: The private sector roars in November on strong demand
December 5, 2018
The composite Purchasing Managers’ Index (PMI) produced by Nikkei and IHS Market rose to 54.5 in November from 53.0 in October. This represents the highest reading since October 2016 and is well above the 50-point threshold that separates expansion from contraction in the private sector.
The services PMI rose to 53.7 in November from 52.2 in October, which represents the highest reading since July. The upturn was due to the joint-fastest increase in new business inflows in two years in November on the back of strong domestic demand, which offset weaker demand from abroad. A heavier workload led businesses to increase their headcounts in November for the 15th month in succession, although this led to higher operating expenses. Nevertheless, a healthy demand environment allowed service providers to raise their selling prices and protect their margins in November. Forward-looking business sentiment also improved in the month.
The manufacturing PMI rose to 54.0 in November from 53.1 in October, which is the highest recorded in 11 months. The rise was primarily due to strong production growth, particularly in the intermediate goods sub-sector. New orders rose at the second-fastest pace in two years in November, partly due to stellar sales abroad. To keep up with rising business inflows, manufacturers utilized some of their existing stocks in November, resulting in a decrease in the holdings of finished goods for the 16th month in a row. On the flip side, pre-production inventories climbed as businesses ramped up purchases—leading input delivery times to lengthen very slightly—in addition to hiring new workers at one of the fastest rates in six years. In terms of prices, although cost inflation slowed, firms were still able to hike sales prices in November due to prevailing demand. Looking forward, business sentiment improved from October’s 20-month low in November.
India Fixed Investment Forecast
FocusEconomics Consensus Forecast panelists see fixed investment rising 7.8% in FY 2019, which is down 0.2 percentage points from last month’s forecast. For FY 2020, the panel expects fixed investment to increase 8.0%.
Author: Edward Gardner, Economist