India's Business activity

Activity in India’s dominant services industry rebounded in June from a mild contraction the prior month, expanding at its quickest pace in a year. That pulled up the Nikkei India Composite Index to its highest since October 2016 with manufacturing activity also showing signs of growing at a faster clip.

A sure-shot sign of growth in demand is the reading of Nikkei’s index for new orders in June, which also surged to its highest since October 2016. That should give confidence to businesses to produce more and in the longer run draw-down inventories and close the output gap.

Output prices are still rising, although the pace has somewhat stagnated. Nevertheless, the RBI says that companies are increasingly finding their pricing power and transferring higher input costs to consumers. This is likely to stoke inflation and keep the central bank on a hawkish watch.