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Indian Manufacturing Moved into an Expansionary Phase in January

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India’s manufacturing PMI rose to 51.1 in January

India accounts for about 2.7% of the world’s gross domestic product (or GDP), and manufacturing activity accounts for ~17% of India’s GDP.

According to Markit, the Nikkei India manufacturing PMI (purchasing managers’ index) rose by 2.0 points to 51.1 in January 2016, compared to 49.1 in December 2015.

Though manufacturing activity has expanded in India, it’s still only marginally above the neutral level. As a result, the Direxion Daily India Bull 3X ETF (INDL) and the WisdomTree India Earnings ETF (EPI) fell 1.4% and 0.91%, respectively, on February 1, 2016. Vedanta (VEDL), HDFC Bank (HDB), ICICI Bank (IBN), and Infosys (INFY) fell 3.9%, 0.66%, 3.5%, and 0.78%, respectively, on February 1.

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New orders recovered from contraction

India’s consumer goods subsector continued to perform well, with an increase in new orders and production levels. However, new orders and production levels fell for investment goods producers and stagnated for intermediate goods producers in January.

The growth of new work in India increased on a rise in domestic orders and new business from abroad in January. The depreciating rupee helped Indian manufacturers to secure export orders.

With the increase in new orders, Indian goods producers hired additional workers. Hiring was seen across the consumer, intermediate, and investment goods categories in January.

Input and output costs both rose in January

Input cost inflation rose in January due to a higher demand for raw materials. Indian manufacturers passed part of their price increases on to customers in January.

Although export orders and domestic demands are rising, overall growth remains lower. The Reserve Bank of India is likely to loosen its monetary policy to boost economic growth and encourage capital spending in the economy. However, with the buildup of inflationary pressure in the economy, it maintained the status quo on the rate hike at 6.8% during its January 2016 meeting.

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

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