Due to an easing in COVID-19 restrictions, factories went full steam ahead for production, supported by a surge in new work. The Indian manufacturing industry is moving in the right direction.
No one in their right mind would want to covet the top job at India's finance ministry at the moment but
Nirmala Sitharaman, the current holder of this portfolio, probably has a small smile on her lips to note that India's factory activity expanded at its fastest pace in over eight years in September due to the relaxation in coronavirus lockdown restrictions. There is a surge in demand and output as surveys are indicating despite layoffs.
One thing is clear as crystal, Sitharaman's ministry did not wait for the pandemic to ease down before taking action. No doubt, the current rising rate of infections has taken a toll but things could have been a lot worse if the government had just stood by and watched the economy being torn to shreds. The onus of resetting the fortunes and identifying the opportunities that lie ahead fell on Sitharaman and, under the circumstances, she has done a commendable job.
The announcement of carte blanche reforms are a case in point. They were necessary and timely because they afforded the country the platform from which India launched its fightback to steady the economy. The promise of FDI, across multiple sectors, was held out via the easing of legislation and archaic laws of the past and the world was invited to come and help themselves to a slice of the economic opportunities that lay ahead.
There is recovery, of that there is no doubt. There has also been contraction - but this is a universal phenomenon. India does not stand isolated from the global economic interplays. Some sectors are moving ahead faster than others but the pace cannot be dictated to any one reason alone. According to Reuters, signs of recovery in factories is welcome news for Asia′s third-largest economy, given that the pandemic is spreading in India at the fastest pace in the world.
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The Nikkei Manufacturing Purchasing Managers′ Index, compiled by IHS Markit, jumped to 56.8 in September from 52.0 in August, above the 50-level separating growth from contraction for a second straight month. It was the highest reading since January 2012.
"The Indian manufacturing industry continued to move in the right direction, with PMI data for September highlighting many positives. Due to loosened COVID-19 restrictions, factories went full steam ahead for production, supported by a surge in new work," noted Pollyanna De Lima, economics associate director at IHS Markit. "While uncertainty about the COVID-19 pandemic remains, producers can at least for now enjoy the recovery."
A sub-index tracking output hit its highest since December 2007 and new orders expanded at the sharpest pace since February 2012, helped by both domestic and foreign demand which grew for the first time in seven months. Although input prices increased at a slower rate in September, manufacturers raised their selling prices after having cut them since March to secure sales. Business optimism about the coming 12 months hit its highest since August 2016.
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Many companies are standing up to be counted and among them Reliance Industries piloted by Mukesh Ambani is showing the way through the promise offered by data and tech. Late on Wednesday, private equity firm General Atlantic stated that they would invest $498.31 million for a 0.84% stake in its retail arm, while Silver Lake co-investors came back for a second helping to buy a stake worth $254.89 million in Reliance's retail unit. Earlier in September, Silver Lake had announced a $1.02 billion investment in Reliance Retail, and the total investment by the US private equity firm and its co-investors now stands at $1.27 billion.
Abu Dhabi state fund Mubadala Investment Co is also in advanced talks to invest up to $1 billion in the retail division of India′s Reliance Industries Ltd, two sources told Reuters, as investor interest in the Indian company surges. These deals voice as much for India's ability to serve notice as they do for Reliance Industries which had already secured a mammoth $20 billion funding for its digital unit. The total number of investments gives Reliance Retail a pre-money valuation of $58.17 billion. It would appear that fresh bidding to grab shares from Reliance verticals has begun given that it has now already sold about a 4.3% stake and raised $2.53 billion in its retail unit. But there is 'good competition' on the horizon. Reliance is not alone given that they are seen as competitors to Amazon.com Inc and Walmart Inc′s Flipkart in India. This is good news for the Indian economy as it fights to stand out as a beacon of hope to the world.
And yet the stock markets seem to be recording a bull run of sorts. Reuters reported that shares rose on Thursday, led by media stocks, after the federal government allowed states to open movie theatres, while the government of Maharashtra, home to the financial capital Mumbai, said it would reopen bars and restaurants. The broader NSE Nifty 50 index rose 1.3% to 11,398.50 and the S&P BSE Sensex gained 1.5% to 38,637.38. The Indian government had earlier allowed states to reopen movie theatres at 50% capacity and said schools and educational institutions could restart in a phased manner. Shares in India′s top cinema chains PVR Ltd and INOX Leisure jumped 9% and 7.8%, respectively, pushing the Nifty media index higher by 3.4%.
In providing a balm to the auto industry Bajaj Auto′s shares rose 3% after it reported a 10% surge in September sales. Maruti Suzuki gained 2% following a 31% jump in sales last month. In this context it is necessary to believe Sitharaman when she states that the economy and the stock markets have been charting out different paths.
The optimism in the markets stems from the newfound zeal of the Indian retail investor, Sitharaman pointed out, saying that she was impressed with this new breed of financiers. Aggressive investors were abandoning the fixed deposit mindset and opting in favour of opening demat account which highlights the new narrative in investor mentality.
Reports indicate that nearly 10 lakh demat accounts were opened last month, while the pre-Covid number for the same used to be around 5 to 6 lakh a month.
A new breed of investor has entered into the fray - the one who can operate directly in the stock markets and who has disposable cash to play with. It would be wrong to try and suggest that there is no connection between the rise in the share market and the ground reality. The fact that a large number of investors are coming forward to play aggressively seems to indicate a connection of some sort. If an investor is optimistic then this sentiment trickles back into the economy. A new economic narrative seems to be taking shape and it would be worth everyone's while to sit back and watch the story unfold.