Every Monday, Mint’s Plain Facts section features key data releases and events you need to keep an eye on during the week. Numbers on India’s services activity will help us understand the extent of post-lockdown recovery in June. Tata Consultancy Services (TCS) Ltd will kick off the earnings season with its June-quarter results on Thursday. Data on mutual fund inflows in June will also be out later this week. Here are the big numbers to track:
1. Services PMI
India’s factory activity contracted for the first time in 11 months in June, shows the first purchasing managers’ index (PMI) reading released on Thursday. The second PMI reading—that for the services sector—will be out on Monday. A nine-month low reading of 46.4 in May shows services activity shrank for the first time since September 2020 as the second wave immobilized large parts of contact-intensive services. High input prices remain a drag, and the manufacturing PMI data for June suggests subdued business sentiment, with continued job losses and weak demand. The experience of advanced economies shows that recovery in services will lag manufacturing until vaccines reach more people. The services sector will likely continue to pull down the composite index in June as well. However, economists see quicker recovery this year than in 2020. Urban centres are witnessing increased mobility, and with lockdowns easing, most high-frequency indicators have gathered steam.
2. Mutual funds
Investors have returned to equity mutual funds in hordes this year as market sentiment has brightened up. Eight straight months of outflows until February, driven by a dull outlook, have reversed: inflows swelled to a 14-month high of ₹9,235 crore in May. Data for June is due from the Association of Mutual Funds in India (AMFI) on Saturday.
The 1% gain in the benchmark share indices in June is likely to have kept mutual funds propped up. Robust earnings growth for listed companies has aided the sentiment, and so has the expectation of a quick recovery after the second wave. Mid-cap and small-cap funds continue to outperform other segments.
Meanwhile, emerging markets will keep an eye out for likely policy reversals from the US Federal Reserve in the coming months. Domestic mutual fund inflows could support markets in case of volatility, but a big correction could discomfit investors.
3. TCS Q1 results
Tata Consultancy Services (TCS) will become the first major company to declare its June quarter financial results on Thursday. The technology firm had a brief contraction in its bottomline due to the lockdown last year, but had fully recovered by the end of 2020. The outlook for April-June is strong, as it is for the broader sector. Analysts predict around 4% sequential growth in sales in the June quarter, as seasonal spending by clients helped curtail the second wave impact for India’s largest software services exporter. But wage hikes to check attrition could crimp margins, analysts tracking the sector said.
Investor appetite for the IT sector has only grown during the pandemic because of the moves towards cloud-based computing and digitization. The BSE Information Technology index has gained 19% this year, against a 9% gain for the Sensex, with the TCS stock generating 10% returns. On earnings day, investors will watch out for more on the company’s pipeline of deals and future growth outlook.
4. Services PMI (EU, UK & US )
Final services PMI data for three of the world’s most advanced economies for June will be out this week: for the euro zone and the UK on Monday, and for the US on Tuesday. Fast-paced vaccinations have helped the rich world revive services activity quicker than others, driving rapid economic recovery.
The US is furthest ahead, having entered expansion as early as July 2020. Provisional figures show a slight slowdown from 70.4 in May to 64.8, on account of labour market issues. In the UK, exports were subdued, with the services PMI dipping slightly.
The EU is going strong in its fresh revival mode, having clocked the first 50-plus services PMI of 2021 only in April. A PMI reading above 50 denotes monthly expansion. Provisional figures show continued, and accelerating, recovery.
The numbers bode well for the recovery for advanced economies. Inflationary pressures are causing some discomfort for business leaders, but medium-term sentiment is getting brighter.
5. China inflation
China’s soaring inflation is creating ripples across the world. A 13-year-high producer price inflation is likely to force local businesses to hike prices of finished goods sooner rather than later. Given the heft of Chinese exports globally, economists fear this would feed into inflation in importing countries.
In May, high commodity prices pushed factory-gate inflation to 9%, while retail prices rose just 1.3%: the gap was the highest in three decades. China’s June inflation data on Thursday will tell us whether that gap is closing.
China finally appears to be acting to check prices. After clamping down on commodity prices, the Chinese central bank is talking of more flexible, targeted policy. It is possible that monetary tightening could begin in China earlier than anticipated. But until that happens, the world will be wary of China-exported inflation.
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