HSBC Markit’s India PMI index, which measures manufacturing and services performance, has slipped to its lowest level since April 2009, with Nomura expecting India GDP growth rate to slip below 5%
Hopes for economic recovery are likely to be dashed, if the Purchasing Manager’s Index (PMI) is anything to go by. It is not just manufacturing and agriculture that is getting affected but services too. According to the latest data, HSBC Markit PMI index, services sector PMI declined to 49.3 in July, its lowest since April 2009, from 51.5 in June. The output index sharply declined to 47.9 in July from 51.7 in June, while the new orders index fell to 47.8 in July from 51.9. Both the input and output price indices moderated, suggesting that weak demand is also constraining pricing power in the services sector.
In a report, Nomura Financial Advisory and Securities (India) Pvt Ltd said, “In our view, the weakness in manufacturing appears to be spilling over into the services sector and this is likely to continue this year. We expect banking/financial services and the trade/transportation output growth to weaken. Hence, despite better agriculture growth, we expect GDP growth to remain weak at a below-consensus 5.0% y-o-y in FY14, the same as in FY13, due to slower non-agriculture growth. We expect policy rates to remain on hold in FY14, followed by 75bp of cumulative repo rate cuts in FY15.”
Commenting on the India Services PMI survey, Leif Eskesen, chief economist for India & ASEAN at HSBC said, “Activity in the service sector contracted in July led by a drop in new business, which also led to a decline in optimism among the surveyed companies. Meanwhile, inflation gauges softened on the back of weaker demand and tough competition. While the RBI has to cater to the currency at the moment, it will eventually need to cater more to growth as economic activity continues to soften.”
Manufacturers and service providers both recorded lower output levels, amid evidence of falling new business and a difficult economic climate. “Down from 51.7 in June to 47.9 in July, the seasonally adjusted HSBC Services Business Activity Index registered below the 50.0 no-change mark for the first time since October 2011 and was consistent with a moderate contraction,” said the report from HSBC India Services PMI.
Inflation, especially food inflation, continues to be a pressing concern for policy makers, politicians and bureaucrats, with elections less than a year away. However, Reserve Bank of India (RBI) has mostly turned a blind eye towards it and has been pushing for a growth-oriented policy. However, it is pertinent to note that inflation isn’t just affecting the poor, but also the services sector. HSBC notes: “Input cost inflation across the private sector economy picked up to the sharpest in five months. Where input costs rose, service providers reported higher prices paid for fuel, labour and raw materials.”
Other reasons for poor output are incessant power cuts and raw material shortages at suppliers. The agriculture sector over the last few years have been grappling with erratic monsoons, poor power supply in villages, which has affected their supply. The power sector has been in doldrums for the past few years, which has stymied the manufacturing sector.
Yet, even the financial sector is not immune. Nomura has warned that banking and financial services growth rate as well as trade output is likely to be weaker, and expects GDP growth rate to dip below 5% by 2014 fiscal. However, they have retained some sense of optimism by expecting interest rate of75 basis points in 2015.
The potent combination of inflation, poor manufacturing, services and agriculture has made many analysts and investors jittery. The continued volatility in the market has thrown the seeds of caution into the wind.
Refer to our cover story on what investors can expect ahead over here (Turbulence ahead for equity, bonds and gold!)
Continuing troubles plaguing the aviation industry affected SpiceJet as it reported lower net profit despite increase in load factor and passenger yields during the June quarter. The carrier intends to renegotiate contracts to contain cost
SpiceJet Ltd posted 19% lower net profit at Rs50.55 crore for the June quarter, compared to Rs62.44 crore a year ago, impacted by weak rupee, high cost of fuel. The airline’s revenues was Rs1,704 crore, a growth of 16% as compared to the corresponding quarter a year ago.
According to SpiceJet, “Several headwinds in the form of a weak rupee and high cost of fuel, the management has executed with an emphasis on efficiency, elimination of waste and profitability.” The airline is implementing a serious of measures such as fare and route rationalisation, optimising aircraft utilisation, improving operational efficiencies, renegotiation of contracts and other cost control measures to improve the company’s operational performance.
Fuel cost as a proportion fell to 43% of the total revenue in the current quarter as against 46% in the comparable quarter for the previous year, mainly due to better realizations from our overseas routes that now make up almost 11% of revenues. However, currency depreciation and higher crude prices continued to exert pressure on margins.
The average passenger yields in the quarter increased by 5%, to Rs 4,278 from Rs. 4,068, as compared to the corresponding quarter a year ago. Domestic market share increased to 19.50% from 18.60% and the airline saw 13% growth in number of passengers coupled with 25% growth in available seat kilometres and 27% growth in number of departures. This resulted in increase in load factor from 77% to 80%.
“SpiceJet continues to explore newer opportunities for business growth and to improve fleet utilizations. In this regard, the Company is aggressively adding to its international network and implementing multiple initiatives with a view to controlling the overall cost of doing business,” the release said.
Spicejet closed Monday flat at Rs25.75 on the BSE, while the 30-share Sensex ended marginally up at 19,182.
National Spot Exchange -NSEL constituted an independent committee to monitor trade settlements worth Rs5,000 crore for which the Exchange would announce the payment plan by 14th August
National Spot Exchange Ltd (NSEL) on Monday formed an independent panel for advising and monitoring settlement of trade worth Rs5,000 crore. The Exchange will prepare a payment plan by 14 August 2013, but trade settlement may take up to five months.
“The Committee would monitor the pay-out of dues as decided in consultation of Forward Markets Commission (FMC). All plant owners and processors will submit their plan for payment of outstanding. NSEL will collate the plans and finalise the pay-in and pay-out in consultation with FMC by 14th August,” said Jignesh Shah, chairman and managing director of Financial Technologies India Ltd (FT), one of the promoters of NSEL.
The ‘oversight committee’, as it is called would have Sharad Upasani, former chief secretary of Maharashtra, Justice RJ Kochar, GN Bajpai, former chairman of SEBI and D Sivanandan, former director general of Police.
Shah, who is also vice-chairman of NSEL said, “Payments would be made in a timely manner and the Exchange would regularly report to the FMC. Delayed payments would lead to 16% interest as penalty. Payments would be completed in a maximum of five months.”
NSEL has been in a crisis after it suspended trade in most contracts on 31st July. The decision to set up the independent committee was taken after a joint meeting on Sunday between the commodities regulator and NSEL along with investors.
On Sunday, NSEL said its eight members/processors were willing to pay about Rs2,181 crore as per the scheduled due date or earlier. Another 13 have offered to pay about Rs3,107 crore in weekly instalments, while negotiations are on with three processors, Namdhari Food International Pvt Ltd, Namdhari Rice and General Mills, and Lotus Refineries Pvt Ltd others for payment of Rs311 crore, the Exchange had said.
Shah said ‘all possible law enforcing measures’ will be taken against the members who default on payment. So far, three members with an outstanding of Rs311 crore against their names, did not come for the discussion on the payment schedule.
According to Shah, NSEL’s settlement guarantee fund has come down to Rs60-Rs70 crore from about Rs800 crore last week. This fund is the margin collected from the planters, who borrow working capital through the NSEL platform.