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Charts & Analysis

Services PMI Improves, But India’s PMI Still Contracts in January

After a decent Manufacturing PMI, the PMI for Services for Jan 2014 has come in at 48.3 (after a low 46.7 in December). Remember, a PMI value below 50 is contraction and above 50 is expansion.

This takes the composite PMI to 49.6 (from 48.1 in Dec) which indicates the economy is probably not out of the woods yet and the economy is still contracting (at least according to the PMI). image

Unfortunately, prices continued to increase. From their press release:

“Service sector activity remains weak and broad based, although Post &

Telecommunication led the softening in January. Meanwhile inflation pressures firmed, with input prices rising at a faster pace. Despite the weak growth backdrop, the RBI has to stick to its hawkish bias to get inflation under control and through this eventually pave the way for a recovery in economic activity."

Impact: Obviously, like all irrational markets, stocks went up.

What they are telling you is loud and clear:

What is standing between India and Growth is only one thing: Inflation.

  • D Rama says:

    And as long as our dear RBI keeps interest rates lower than inflation, you can be rest assured that there will be no capital formation fueling the growth either. Citizens, institutions and corporates, all of them will, in one way or another consume today’s income, or borrow and spend on non-productive things. Makes sense, right? If I’m earning a negative return on my capital, I will do my darndest to ensure either I spend it off with today’s higher purchasing power or move it to some hard, assured, non-productive asset (gold, real estate, art).