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Twin pointers to challenging 2014

Mumbai, Jan. 2: An HSBC survey released today showed a deceleration in the country’s manufacturing sector in December. Another study by rating agency Crisil has projected a tepid 7-9 per cent rise in India Inc’s revenues in the third quarter of this fiscal.

The HSBC India Manufacturing Purchasing Managers’ Index (PMI) — a measure of factory production — dropped slightly from 51.3 in November to 50.7 in December owing to a slowdown in domestic orders.

“Today’s numbers show that growth remains moderate and struggles to take off because of lingering structural constraints,” HSBC chief economist for India and Asean Leif Eskesen said.

However, HSBC added that manufacturing ended 2013 on an encouraging footing as operating conditions improved for the second successive month in December with both output and new orders increasing. Firms added to their workforce in December, the survey noted.

According to HSBC, the manufacturing sector slowed in December, after crawling back to growth in November, because of faltering domestic demand. External demand, on the other hand, picked up again.

It pointed out that elevated and persistent inflation, tighter financial conditions, insufficient progress on reforms and slow execution of key investment projects were holding back domestic demand.

“On the bright side, there are signs that inflation pressures may be easing. The strengthening of the exchange rate since August has helped to reduce imported inflation and weak domestic demand is also contributing. The improvement in food supplies should also help contain inflation pressures in the near term,” HSBC said.

Meanwhile, Crisil projected that Corporate India’s revenues (excluding financial services and oil companies) will rise just 7-9 per cent during October-December.

On the positive side, several sectors are likely to register a gradual improvement in growth unlike in the previous quarter when growth was concentrated among a few sectors.

However, the rise in revenues will not translate into higher profitability, and margins are likely to remain stable at 17 per cent.

Export-oriented sectors such as IT, pharmaceuticals and readymade garments are expected to record robust growth, led by a rupee depreciation of around 14 per cent.

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