Must-know: India’s purchasing managers' index plunges

Must-know: India’s purchasing managers' index plunges (Part 1 of 2)

India’s economy is weaker than Brazil, Russia, China, and Mexico

Mexico’s August PMI showed the index dropped below 50, an expected outcome yet a significant signal for investors

The Purchasing Managers Index, PMI, is a country-level survey that gauges the level of activity in the manufacturing sector. The index ranges from 0 to 100, with values above 50 imply expansion and values below 50 implying contraction.

BRICs and Mexico Manufacturing PMIs 2013-09-04Enlarge Graph

Through July, China (FXI) had accumulated three months under the 50 point mark, while Mexico (EWW), India (PIN), and Russia (RSX) crossed the line below 50 for the first time in several months. India had been the only country of the BRICs and Mexico that had remained above 50—though barely.

India’s July PMI was 50.1, a neutral level signaling potential stagnation in manufacturing output. Its August PMI decisively crossed the 50 point line and reached 48.5. At the same time, China and Mexico climbed back above 50 and Russia and Brazil reversed the decreasing trend and started climbing back towards 50.

Leif Eskesen, HSBC’s chief economist for India, stated, “Notwithstanding the weak growth backdrop, the RBI will likely keep its liquidity tightening measures in place for a while still to help contain the depreciation of the currency. Combined with the heightened macroeconomic uncertainty, this will continue to weigh on growth in coming months.”

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