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India Factory Activity at 2-Year High

India Factory Activity at 2-Year HighIndia Factory Activity at 2-Year High

The HSBC India Purchasing Managers’ Index (PMI), reflecting business activities, registered a two-year high in December, much in contrast with the government’s IIP (Index for Industrial Production) data that showed a contraction of 4.2% up to October 2014.

According to market watchers, the government data is misleading and consistently volatile, DNA reported.

“The IIP data is pessimistic and contrary. Some items are given high weightage and are irrelevant. In November it was telecom. This contradiction can be seen in the core data subsequently released,” said V K Vijayakumar, investment strategist-economy and markets at Geojit BNP Paribas Financial Services.

Growth rate of eight core sector industries rose to five-month high of 6.7% in November on the back of better output in coal, refinery products, electricity and cement, according to data released on Wednesday.

The latest HSBC PMI data had factored in the softening inflationary trends and impact on prices. The headline index – a composite indicator designed to give an accurate overview of manufacturing operating conditions – climbed to a two-year high of 54.5 in December, up from 53.3 in the prior month, said a release.

The negative IIP data of October had given high weightage to telecom equipment manufacturing and a shutdown of a telecom factory shutdown in Chennai adding to a contraction of 80% to the consumer durables.

“How else can you explain a vast range from negative to a strong robust economy as reflected in the PMI data. It is difficult to believe in a country like India, Nokia factory shutdown was given such a high weightage,” he said.

“India is not the only exception, where government data is based on wider spectrum but tabulated with inconsistent data mining,” said a government banker.

  Surprises

However, the PMI data had two surprises, one, that of the fastest expansion in the consumer goods sector and second, exports that grew the strongest since April 2011.

The PMI reflected an increase in new orders for the 14th consecutive month. The expansion rate was the fastest since the end of 2012, it said. The Indian manufacturing companies registered a rise in new export business in December. New work from abroad expanded at the quickest pace since April 2011. Reflective of further growth of output and new orders, input buying among Indian goods producers increased in December. The rate of expansion accelerated to the most marked in the current 14-month sequence of growth. The pace of pre-production inventory building picked up to the sharpest in more than two years.

Commenting on the PMI versus IIP data, Shubhada Rao, president and chief economist at YES Bank said, “There is a disconnection between the two. However, the PMI data has been encouraging and is more of a reflection of the softening global commodity prices, pick up in domestic exports, growth of output and new orders, input buying amongst goods producers.” Most economists, including Rao find the PMI data a reassuring indicator for the economy.

Financialtribune.com