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PMI Index Falls from a High
Fri, 6 May Pre-Open

Many believe that the earnings turnaround is gaining traction. A Mint analysis of 76 BSE 500 companies that reported their earnings and for which comparable estimates were available showed that 64.5%, or 49 of them, beat Bloomberg consensus estimates for net profit during the March 2016 quarter. For net sales, 48 or 63.2% of the firms under the review beat estimates.

However, the recent data in relation to Nikkei India Composite Purchasing Managers Index (PMI) shows a fall in the output in manufacturing as well as service sector for the month of April. The Nikkei India Composite PMI Index dropped to 52.8 in April from a 37-month high of 54.3 in March.

PMI is an indicator of the economic health of the manufacturing and service sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment. A reading below 50 indicates a contraction in the manufacturing activities. This index has remained very volatile in the recent months. The numbers have varied in the range of 49.2 to 54.3.

While the government's 'Make in India' drive is a big long term positive, the current situation is not. While project approvals are trickling through, the sector is groaning under a huge pile of debt. This trend could persist in the short term. However, as long as the government sticks to its reform agenda over the long term, the future is bright for the Indian industry. In such an uncertain scenario, one would do well to keep realistic expectations regarding growth and follow a bottom up approach for investing in equities.

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