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The October HSBC Markit Purchasing Manager’s Index (PMI) came in at 57.2, compared to 55.1 in
September. The October PMI is now at the same level as April.
Amongst its components, manufacturing output, new orders, and employment all moved higher. The
employment sub index rose above 50 for the first time since June. Input prices rose above the 60 level, and output
prices also increased to 51.6 from 50.9.
The October PMI numbers have been flat since April, suggesting that activity is not accelerating, though
robust. A better-than-expected monsoon will likely help sustain demand. Our forecast for FY11 GDP growth
remains at 8.5% driven by a strong agricultural crop. The rise in input and output prices suggests that inflation is
still not under control. We continue to expect the Reserve Bank of India (RBI) to hike both the reverse repo
and repo rates by 25 bp on November 2 due to high and persistent inflation, and robustness in demand. We
believe the RBI will hike policy rates by another 75-100 bp by end-June 2011.
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