Nikkei manufacturing, services and composite PMI index bounces back in July

Cautious optimism for consumer packaged goods – hard work ahead

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Nikkei

In July both the Nikkei India purchasing managers indices – manufacturing and services bounced back up from June as did the composite index. The Nikkei India manufacturing PMI rebounded to a six month high of 52.7, while the Nikkei India services PMI came back to 50.8 after two months of below 50 performance. The composite index also climbed to 52 in July from 49 in June. The manufacturing index is based on a survey of 300 non-public sector companies and the services index on 350 private sector companies across six sectors – a score above 50 implies expansion and below 50 indicates contraction.

However, Andrew Harker, the senior economist at the firm that compiles the survey Markit, has been quoted in the financial press in regard to the July figures as saying, “We are still looking at a modest improvement at best . . . When looking at the manufacturing and service sectors together, weak inflationary pressures and a modest growth tend to support a more accommodative monetary policy environment.”

Signs of CPG revival could point to a better second half for FY15-16

On Tuesday, 4 August 2015, the Reserve Bank of India noted that consumption demand especially in urban areas is picking up. It cited indicators such as car sales and added that the lower cost of commodities such as crude oil could also improve the outlook. Giving additional credence to improved growth are the Nielsen research figures that indicate that consumer packaged goods as a category grew by 11% in value in the April to June quarter compared to the same period a year ago – an improvement over the 7% growth of January to March quarter. The trend is more apparent in urban-centric categories such as chocolates, diapers, sanitary napkins, hair conditioners and deodorants.

Shoppers Stop and its Hypercity chain have reported a volume growth of 10% in the June quarter – the highest growth seen in the last seven quarters with expectations thatQ2 andQ3 this year will be particularly strong. The Indian consumer confidence level has also improved – reaching levels not seen since the first quarter of 2011, according to an end July report by Nielsen.

Other financial experts and economists are expecting private consumption expenditure to grow above 8% this year versus a figure of over 6% last year. Passenger vehicle sales grew 6.17% in the June quarter in comparison to the 4.4% growth of the previous quarter. July auto sales were also strong while airlines have seen a 20% year on year growth indomestic passenger sales in the first half of this calendar year in comparison to the mute 4.5% growth seen in the first half of the 2014 calendar year.

In spite of new launches, facelifts, and upselling of their product portfolios, companies remain cautious while tending to refocus or return to their urban-centric markets. There is a consensus that there is still much hard work ahead in creating confidence and excitement and ultimately in getting consumers to spend.

– Naresh Khanna, editor@ippgroup.in

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– Naresh Khanna

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