The HSBC manufacturing PMI for September continues to contract, but at least it’s doing so at a slower pace. Taken together with the increase in the index of core industries, which rose 3.7% in August, the highest in nine months, the data could be interpreted as a troughing out of industrial growth; after all, factory output in July rose 4% month-on-month adjusted seasonally. Within IIP, manufacturing perked up 3% albeit helped by sharp spikes in a few items. The more optimistic will point to loan growth of 17-18% yoy growth over the last four fortnights compared with a more subdued 14-15% yoy increase before that. And Hero Motors has done well to report a 16% yoy jump in volumes while the 37% yoy jump in tractor sales at Mahindra and Mahindra reflects rural demand remains robust in September. Throw in the double-digit pick-up in exports for July and August, and some semblance of stability in the currency and it would seem like the revival is almost here. It may be premature, however, to be calling it a bottom.
For one, sales of commercial vehicles remain severely depressed—at Tata Motors CV volumes for September fell a sharp 31% yoy with M&HCVs crashing 42%—indicating that the economy is not quite out of the woods. Bankers aren’t talking of any pick-up in the demand for project finance which means the capex cycle isn’t turning and if more working capital is being disbursed it’s simply because the sharp rise in the cost of money has pushed borrowers out of the bond and CP markets. Indeed, given how over-leveraged companies are, especially in the infrastructure space, there’s little chance of investments picking up in the near term. As for consumer demand, which has been tapering off, the continuing double digit rise in the CPI, will pressure household spends—consumer durables contracted for the eighth consecutive month in July. The silver lining is the good monsoon which should leave rural incomes strong providing some succour to the economy.