India Manufacturing PMI rises to its highest level in just under eight years
Business & Economy

India Manufacturing PMI rises to its highest level in just under eight years

NetIndian News Network

New Delhi, February 3, 2020

The IHS Markit India Manufacturing Purchasing Managers' Index (PMI) rose from 52.7 in December 2019 to 55.3 in January 2020, its highest level in just under eight years as growth of new business, output, exports, input buying and employment gathered speed.

"The rate of expansion in India's manufacturing industry continued to gain strength in January as firms responded positively to a sharp improvement in demand," a press release from IHS Markit said.

"At the same time, business sentiment strengthened and there were softer rises in both input costs and output charges," it said.

The PMI is a seasonally adjusted composite single-figure indicator of manufacturing performance in the country. It is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 400 industrial companies. An index reading above 50 indicates an overall increase in that variable, below 50 an overall decrease.

The release said the consumer goods sub-sector remained the brightest spot, although growth was sustained in intermediate goods and capital goods moved back into expansion.

It said companies noted the strongest upturn in new business intakes for over five years, which they attributed to better underlying demand and greater client requirements. A number of firms also suggested that marketing efforts bore fruit.

"The rise in total sales was supported by strengthening demand from external markets, as noted by the fastest increase in new export orders since November 2018. Manufacturers particularly noted higher sales to clients in Asia, Europe and North America, with favourable exchange rates assisting the upturn," it said.

The release said that, in response to the pick-up in demand, Indian goods producers scaled up production in January. Moreover, the rise was the strongest in over seven-and-a-half years, with the rate of expansion much higher than its long-run average.

"Such was the strength of the rise in sales that some firms had to use their stocks to fulfil order obligations. As a result, inventories of finished products declined sharply in January.

"On the other hand, holdings of raw materials and semi-finished items increased at the start of the year. The accumulation was the first in six months and the most pronounced since May 2017. Stock building efforts were linked to robust order inflows and the impending launch of new products," it said.

According to it, supporting the rise in input stocks was a further increase in quantities of purchases, the second in successive months. The expansion in buying levels was the strongest in a year.

Hiring activity improved in January, with firms increasing employment at the quickest rate in close to seven-and-a-half years. New business growth and projects in the pipeline were cited as the main reasons for job creation.

The release said that, with capacities being expanded by further hiring, companies were able to stay on top of their workloads. Unfinished business was broadly unchanged in January, ending a six-month sequence of accumulation.

On the price front, there were slower increases in both input costs and factory gate charges. While some firms reported higher prices for metals, textiles and food, others noted lower fees for copper, packaging materials and rubber. For the third month in a row, the rate of charge inflation surpassed that seen for costs.

The survey showed that Indian manufacturers were more upbeat about the year-ahead outlook for production. Optimism stemmed from forecasts of better demand, new client wins, marketing efforts, capacity expansion and new product releases.

Pollyanna de Lima, Principal Economist at IHS Markit, said: "Manufacturing sector growth in India continued to strengthen in January, with operating conditions improving at a pace not seen in close to eight years."

"The PMI results show that a notable rebound in demand boosted growth of sales, input buying, production and employment as firms focused on rebuilding their inventories and expanding their capacities in anticipation of further increases in new business.

"Companies also benefited from subdued cost pressures, which enabled them to restrict increases in their fees to some extent.

"To complete the good news, there was also an uptick in business confidence as survey participants expect buoyant demand, new client wins, advertising and product diversification to boost output in the year ahead," she added.