Factories may sharply cut losses in Q2; demand, output, new orders see sudden jump

India recorded the best turnaround in manufacturing activities during August 2020.

While India’s manufacturing sector shrunk as much as 39.3 per cent in the fiscal first quarter, factories seem to have performed much better during the last month (August), raising hopes of a significant recovery in Q2. Globally, India recorded the best turnaround in manufacturing activity during August 2020, compared to the previous month, said a report by Anand Rathi Research. “We expect Q2 FY21 manufacturing growth to be negative but contract less than 10 per cent versus 39 per cent in Q1 FY21, it added. The manufacturing PMI for India rose from 46 in July 2020 to 52 in the month of August, ending the four successive months of contraction.

Globally, the manufacturing PMI improved for 16 out of 25 countries in August and among all the peers, India’s manufacturing PMI improved the most. The sharp uptick in the manufacturing sector has come as a relief after the government revealed data showing a severe fall in the first quarter. Though the sector is expected to significantly improve in the second quarter, the manufacturing GVA is unlikely to expand. However, the pace of contraction will be decreased. As demand in the country increases, the manufacturing sector is expected to pick up proportionately.

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While August marks the first rise in the manufacturing PMI since February, we think the ongoing increase in the coronavirus cases and lingering uncertainty will remain a drag on economic activity through Q3 FY21, said a report by Barclays. With provincial governments still enforcing partial lockdowns, the drag on the economy is likely to persist through the third quarter and the economy is expected to shrink by 6 per cent in the current fiscal, which would also be the steepest contraction on record. Meanwhile, the customer demand, output, and new orders rose at the fastest pace since February 2020 in August. The pick-up in demand from domestic markets has given rise to upturns in production and input buying.