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India’s Manufacturing Contracts in December 2015

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Dec. 4 2020, Updated 10:50 a.m. ET

India manufacturing PMI fell to 49.1 in December

India accounts for about 2.5% of the world’s GDP, and manufacturing activity accounts for ~17% of India’s GDP. According to Markit, the Nikkei India manufacturing index fell by 1.2 points to 49.1 in December, compared to 50.3 in November 2015.

As a result, the Direxion Daily India Bull 3X ETF (INDL) and the WisdomTree India Earnings ETF (EPI) fell 7.1% and 1.8%, respectively, as of January 4. Vedanta Limited (VEDL), HDFC Bank Ltd. (HDB), Tata Motors Limited (TTM), and Infosys Limited (INFY) declined by 2.2%, 2.8%, 3.9%, and 3.0%, respectively, as of January 4.

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New orders contracted in December

India’s consumer goods subsector continued to perform better, with an increase in new orders and production levels. However, the new orders and production levels declined for intermediate and investment goods in December. As a result, new incoming work contracted in December.

The growth of new work in India was lower, with declining domestic orders due to the Chennai floods. However, new business from abroad increased in December. The depreciating rupee has helped Indian manufacturers to secure export orders.

Although orders were muted, Indian goods producers hired additional workersm expecting domestic demand to increase in the near future.

Cost inflation accelerated but remained below the long-term trend

In December, stocks of inventories of purchases increased, while that of manufactured goods declined. Input cost inflation rose in December due to higher transportation cost and import costs. Indian manufacturers passed part of their price increases to customers in December.

Although export orders are rising, domestic demand in India remains subdued. However, it remains to be seen how the Make in India initiative launched by Narendra Modi, prime minister of India, may help the Indian economy revive its ailing manufacturing sector.

In the final article in this series, let’s look at China’s manufacturing activity.

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