The pace of growth in India's factory sector inched up in April, supported by bulging order books, but slower output growth and increasing price pressures dampened sentiment, a business survey showed on Wednesday.
The HSBC India Manufacturing Purchasing Managers' Index (PMI), compiled by Markit, rose to 54.9 in April from 54.7 in March. The index has remained above the 50-mark that divides growth from contraction for more than three years. "Activity in the manufacturing sector expanded at a slightly faster pace in April. While output growth moderated ... new orders continued to pour in, including for exports," said Leif Eskesen, chief economist for India & ASEAN at HSBC. The new orders sub-index rose to 61.1 in April after falling to 58.1 in March, buoyed by strong exports, but while remaining solidly above 50 the factory output index fell for the third straight month. However, actual industrial output data is painting a bleaker picture with India posting sluggish factory production growth of 4.1% in February from a year ago, way below the 6.6% expected by analysts. That does not bode well for Asia's third largest economy as factory output accounts for roughly 15% of gross domestic product (GDP). Last month economists cut their GDP forecasts for the fifth straight quarterly Reuters poll and now expect growth to average 7.1% in the fiscal year to March 2013. The government is more optimistic, expecting the economy to grow 7.6% in the same period, but even that is still a far cry from the near double-digit rates seen before the onset of the global financial crisis in 2008. The economy has been throttled in recent years by a combination of high inflation, tight monetary policy, weak global economic conditions and the lax implementation of fiscal policies and reforms. The PMI survey showed the costs of raw materials grew at their fastest pace since August, and firms hiked their prices at the quickest rate in a year. Fears of adding to inflationary pressures that have plagued the economy might prevent the central bank from cutting interest rates aggressively to stimulate growth. The Reserve Bank of India cut the repo rate by a greater than expected 50 basis points last month to boost the flagging economy, but warned that it had little room to manoeuvre as inflation was likely to remain elevated. "Inflation accelerated with both output and input prices rising faster," said Eskesen. "This suggests that upside risks to inflation remain and that the RBI's rate cut could turn out to have been premature and too aggressive." On Wed, May 2, 2012 at 10:28 AM, karishma suvarna < [email protected]> wrote: > Investors may not mind paying a higher valuation for fast moving > consumer goods, given the decent set of March quarter numbers announced by > key companies. Revenues of key players like Hindustan Unilever, Godrej > Consumer and Dabur India have grown at a healthy rate, though margins were > slightly pinched because of rising operational expenses, mainly volatile > raw material costs. HUL shares are up over 2% after the company yesterday > reported a 16% growth in fourth quarter sales and a 21% increase in net > profits. But how much of the good March quarter performance is already > priced in FMCG stocks in general? Most fund managers and analysts say the > stocks are fairly priced at current levels, or even over valued in some > cases. Should earnings disappoint, these stocks could correct faster than > the market they argue. But looks like FMCG stocks can hold on to their > premium valuations for some more time. The outlook on the broader market > remains uncertain, which in turn could drive investors to safer havens like > FMCG and pharma. Besides, consumer companies are turning in decent numbers, > and that itself is a good reason to justify the high valuation. In terms of > absolute returns, FMCG shares may still sneak ahead of their counterparts > in other industries. But the risk-reward ratio is no longer as attractive > as it was some months. > -S Nair > > > -- > > Karishma Suvarna > > -- CA. Rajesh Desai -- You received this message because you are subscribed to the Google Groups ""GLOBAL SPECULATORS"" group. To post to this group, send email to [email protected]. To unsubscribe from this group, send email to [email protected]. For more options, visit this group at http://groups.google.com/group/globalspeculators?hl=en.
