Who gains from the PMI report? And why manufacturing needs attention.

The question is – who is poised to gain from this PMI report? Oh, wait. I am getting ahead of myself. This rant of mine is about HSBC’s PMI data which has reached a two-year peak.

Hate to start the new year on a morbid note related to the economy. But, that is current reality. In one of my previous posts, I had talked about the country’s rate of WPI related inflation and the indicators coming in from the secondary sector.

The story seems to continue, but the industry pundits strangely are floating in some sort of self-created euphoria. Brent’s barrel seems to be continually rolling downwards. Manufacturing in our country is showing not so great figures (will talk about this shortly). The WPI has come down, and the inflation rate touched zero percent for a period. That does not really have a direct impact on the common people. What matters is the Consumer price index, the CPI.

The last CPI data released by the RBI (last month) clearly shows that the CPI is actually going upwards. It showed at a 145.2 (for combined) for Oct 14 as compared to 137.6 for Oct 13. For your amusement, check this RBI graph which also shows the CPI-Industrial workers along with combined CPI and WPI.

RBI Credit data by sector

RBI Credit data by sector

The previous post also showed you that our WPI for manufacturing had dropped by 0.3% and our exports have shows a -5% progress. That should be causes for alarm. If inflation does trend downwards, interest rates get chopped. The finance minister however,  declared two days back interest rate cuts aren’t really being considered. That overt statement tells you something, and also of course is the right direction to go.

Very recently, you must have read about Mahindra & Mahindra dropping its production to bring it in line with demand. My above findings / analysis seems to be exactly in line with what M&M is doing. Another piece of data which corroborates this is the falling credit being given by banks (as you will see in the RBI graph above). Get the picture?

HSBC’s Purchase Manager’s Index for India shows to be at 54.5 and there is a sudden euphoria again. Most Indian trade and finance newspapers have already have had a picnic because the number is the highest in the last two years. And by later today or tomorrow you will see various finance wizards carrying the group love fest together. But, hear this. This report is surveyed data from only 350 private sector companies. Just 350, in a country like India.

This really has to do with the sample size and type and does not have to do with any synchronicity with other economic factors and data available. So, why this hype? You might want to consider the fact that a piece of news does impact the market, and one should consider what stake does HSBC have in the market. You sense a link? There might be.

What is completely silly is Economic Times, and Business Standard (there might be others) jumping in joy. And what should bother us is that not only newspapers, and a bank but other finance experts will project this as an amazing this. You might ask what are these guys smoking? Yes, I would too.

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