PMI
Purchasing Managers' Index (PMI) is a survey-based leading economic indicator that measures the prevailing direction of economic trends in manufacturing and services sectors, with readings above 50 indicating expansion and below 50 indicating contraction.
The Purchasing Managers' Index is one of the most timely economic indicators available to investors and policymakers, released on the first working day of each month for the prior month's activity. In India, the manufacturing PMI and services PMI are compiled by S&P Global (formerly IHS Markit) based on surveys of purchasing managers at around 400 manufacturing and 400 services firms respectively. Respondents indicate whether output, new orders, employment, supplier delivery times, and input prices improved, remained the same, or deteriorated compared to the previous month. The composite index is a weighted average of these components.
The PMI is a leading indicator because purchasing managers make decisions about orders and hiring in anticipation of near-term demand, making their responses forward-looking relative to hard data like IIP (which captures past production) or GDP (which is available with a quarter's lag). A sustained run of PMI readings above 55 — as India's manufacturing PMI delivered through much of 2023 and 2024 — signals strong expansion in factory activity, new order intake, and employment, consistent with a positive growth outlook.
India's manufacturing PMI outperformed many emerging market peers in the post-pandemic period, reflecting resilient domestic demand, government infrastructure spending, and the early results of PLI-driven manufacturing investment. The services PMI, buoyed by IT exports, financial services, and a post-COVID rebound in hospitality and transport, consistently registered above 60 at certain points — levels indicative of strong expansion. The composite PMI (combining manufacturing and services) gave a blended picture of India's predominantly service-oriented economy.
Investors use PMI data to anticipate corporate earnings trends. Rising new orders in the manufacturing PMI typically precede higher revenues for capital goods companies, auto ancillaries, and packaging firms. A sharp fall in the PMI input prices sub-index signals easing raw material cost pressures, which can pre-empt margin recovery for manufacturers. The employment sub-index is watched for signals on wage growth and labour market tightness that might influence consumer demand.
A subtlety often missed is that PMI is a diffusion index, not a level index. A PMI of 55 in November after 60 in October does not mean activity declined — it means a smaller proportion of firms reported improvement relative to the prior month. The index can be above 50 (indicating expansion) while the rate of expansion decelerates, which may still be a leading indicator of future softening even though the absolute business environment remains positive. This nuance is crucial for interpreting PMI data correctly alongside other high-frequency indicators.