Summoned by bells and fireworks, the New Year strutted in last week with hardly a Bear in sight: because, when it comes to early 2022 trading, the Bulls are still in charge: the Sensex Index rose 1,711 points (or 1.8%) to 59,855, and the Nifty 50 closed up 1307 points at 18,661 (a rise of 1.27%). Banking and IT stocks performed particularly well, but shares across all sectors on the subcontinent now seem to have the wind beneath their wings: reflecting, no doubt, an increased sense of optimism as India emerges from lockdown restrictions, as well as a renewed feeling of confidence inspired by the success of an unprecedented vaccination programme: more than 1.46 Billion doses have now been delivered in India, with 609 Million fully vaccinated. So Bears beware…this is the year of the Bull.
Of course Financial Markets have never been wholly driven by anything so airy and insubstantial as confidence and optimism: a sort of “feel good zeitgeist”, as likely to produce an unstable market bubble as it is a bull run. Instead it’s that rare and heady combination of social confidence and underlying economic strength that makes all the difference: producing the sort of upward trajectory we’re witnessing on Indian Markets at the moment.
The most widely recognised and reliable measure of economic strength is Manufacturing PMI (or “Manufacturing Purchasing Managers’ Index'' for long): an index designed to monitor core manufacturing activity by reference to regular, in depth surveys conducted by Markit Limited (www.ihsmarkit.com): anything above 50 on the index means expansion, and anything below (you’re way ahead of me)… anything below, means economic contraction. And this means in turn that the index acts as a key measure of business confidence within an economy (depending on whether it's going up or down).
India’s seasonally adjusted PMI for December 2021 was 55.5, and in the previous month the Index hit a ten-month high of 57.6 (that’s within a tenth of a point of the United States, well ahead of Russia (51.7) and nearly eight full points ahead of Brazil (49.8)): interestingly pointing to the BRICS community being sliced in two, with India, China and South Africa pulling ahead of the pack.
And that’s not all: the latest quarterly PMI return for India was 56.3, the highest since the last quarter of the fiscal year 2020/21.
Drilling further down into the December data also reveals a progressive improvement in the subcontinent’s general operating conditions (for the seventh straight month): including a sharp upturn in new orders, increased production output, higher business spending on stock, and a continued expansion in demand for Indian goods across international markets (new export orders rose for the sixth month in succession: underpinning its position as a global manufacturing hub).
And unlike the former mother country, which is currently grappling with a surge in inflation (at 5.2%), the subcontinent last month witnessed a fall in inflation to a three-month low.
Justification enough, you might think, for the peppy conclusion reached by the appropriately named Pollyanna de Lima, Economic Associate Director with IHS Markit:
"The last PMI results of 2021 for the Indian manufacturing sector were encouraging, with the economic recovery continuing as firms secured new work from domestic and international sources”
And if that continues for the rest of 2022, you’ll struggle to find any Bears at all…
It’s difficult to imagine India’s Financial Markets could perform as well as they are at the moment, without a strong background sense of social cohesiveness and public confidence (driven in particular by the success of the Modi Government’s unprecedented vaccination programme).
But it takes economic strength to make it all come together…and India has that too.
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