Why India’s Manufacturing Lost Momentum in May

Manufacturing activity in India (INDA) lost momentum in May 2017, with the India Manufacturing PMI (purchasing managers’ index) recording a decline after posting growth for four consecutive months. According to a Markit report in June 2017, manufacturing activity fell to 51.6 in May.

Indian manufacturing activity (EPI) (PIN) is expected to pick up in 2017 due to Prime Minister Modi’s reforms. Modi aims to position India as a global manufacturing hub through his “Make in India” initiative.

The Nikkei Manufacturing PMI in India (PIN) fell to 51.6 in May 2017, as compared to 52.5 in April. This low level in May indicates the weakest expansion in factory activity since February 2017. Output in May 2017 expanded less than it has in three months, and new orders posted slower growth than it did in April. Export orders in May also contracted for the first time in the past four months.

Employment in manufacturing fell, whereas purchases rose more than they have in the past three months. On the price front, input costs grew at a slower pace since September 2016. Final costs of products accelerated in May, as compared to April. Still, the expectation for India’s (SCIF) performance in manufacturing remains optimistic for the next six months.

Remember, the manufacturing PMI helps investors understand the economic backdrop of a country’s manufacturing sector. Any improved manufacturing PMI data could mean a strong manufacturing sector that further supports economic activity.

Notably, the iShares India 50 ETF (INDY), which tracks 50 of the largest Indian equities, has fallen ~1% in 2017 as of June 23, 2017.

In the next and final part of this series, we’ll discuss what happened in India’s service sector in May.