Upbeat stocks, rupee, PMI: Is India poised for economic turnaround?

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Upbeat stocks, rupee, PMI: Is India poised for economic turnaround?​

Well, 2012 certainly seems to have started with a bang for the Indian economy. After all the hand-wringing last year, January has brought good tidings for different parts of the economy, including the currency, stock markets and manufacturing sector.

Several bits of good news are popping up, and hopes are increasing that 2012 could be the year when the swooning economy picks itself off the floor, despite the policy paralysis on the part of the government. On Wednesday, data on India’s factory activity added to the upbeat mood.

While it’s premature to judge whether we are on the cusp of a sustainable economic recovery, there are several reasons to feel hopeful about the near future.

One, Indian manufacturing activity, as measured by the Purchasing Managers’ Index from HSBC and Markit, jumped to 57.5 in January, up from 54.2 in December. It was the index’s biggest monthly gain since April 2009. A reading above 50 indicates growth in manufacturing (factory) activity, a reading below indicates contraction. The gains were driven by increases in both domestic and export orders.

However, price pressures remained as input costs grew at a faster pace than in December.

Two, the rupee ended January at 49.44/45 pocketing a 7.4 percent gain, helped by soaring non-resident Indian deposits, interventions in the foreign exchange market by the central bank and robust portfolio investments in equity and debt markets. It’s an amazing reversal of fortune for a currency that ended 2011 as Asia’s worst performing and hit an all time-low of 54.30 against the dollar in December. The outlook in the near term remains positive for the rupee, according to most analysts.

Three, stock markets have also been basking in the attention of foreign investors. The Sensex jumped 11 percent in January as overseas investors bet the worst is over for India’s economy and that the central bank would start easing monetary policy (cut interest rates) by March/April.

So far this year, foreign investors have bought shares worth $2.1 billion and invested $3.2 billion in debt, according to data from market regulator Securities and Exchange Board of India. While this kind of money is undoubtedly fickle in nature, for now, the mood continues to be optimistic, although some correction is expected soon.

Four, if everything goes as planned, inflation is likely to fall further in coming months, at least until March. High prices — and the resulting high interest rates to tame prices — plagued the economy for most of 2011, hurting consumer demand and business investment. Inflation eased to 7.47 percent in December aided by sharply falling food prices. The hope is that it could fall further (to around7 percent by March). That will give room for the RBI to start implementing much-needed rate cuts.

Five, consumer demand for big-ticket items seems to be in revival mode. The top car makers, for instance, experienced moderate growth in sales in January. Maruti Suzuki, the country’s largest car-maker, finally reported a 5.2 percent in sales, after posting declines for seven months.

Car sales had declined between July and October because of high borrowing costs and high petrol prices, but started picking up in November as manufacturers offered hefty discounts and freebies to push sales. Car sales in the new financial year (starting 1 April) are expected to be better because of anticipated interest rate cuts.

Six, this is probably the single-biggest driver of sentiment right now: an expected interest rate in April/March. While borrowing costs will only ease slightly, sentiment is likely to improve tremendously. That, and hopefully a more reformist Union Budget, could put India back on track for moderately higher growth in the next financial year.

http://www.firstpost.com/economy/up...ia-poised-for-economic-turnaround-200931.html

 

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