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India's manufacturing PMI registered a reading of 48.1 in June as compared to 50.8 in May. This is the first reading of below 50 since July 2020 and signifies sequential contraction in the manufacturing sector due to the strict containment measures enforced to contain the second Covid wave. However the pace of contraction was much more moderate that what was witnessed during the first wave. While the impact on manufacturing was relatively mild the impact on services is expected to be higher. However gradual easing of restrictions through June has led to significant improvement in economic activities by the end of the month which should be reflected in next month’s PMI numbers. We believe that markets will largely ignore the adverse impact of the pandemic in Q1 and will take cues from the trajectory of new Covid cases in India.

 

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