India's Manufacturing PMI highlights the strongest improvement in the health of the sector in eight months
New Delhi, August 1, 2022
The S&P Global India Manufacturing Purchasing Managers' Index (PMI) rose to 56.4 in July from 53.9 in June, highlighting the strongest improvement in the health of the sector in eight months.
"Moreover, growth upgrades were seen in each of the three monitored market groups," a press release from S&P Global said.
The release said Indian manufacturers made a positive start to the second fiscal quarter, with marked gains in growth of new business and output. While companies stepped up input purchasing, job creation remained marginal amid an uncertain outlook and a general lack of pressure on operating capacities. There was also good news on the price front, as rates of both input cost and output charge inflation subsided.
The survey showed that Indian manufacturing production rose at a sharp pace that was the fastest in eight months. The upturn was broadbased by sub-sector, and led by investment goods. Those panellists that reported higher output volumes mentioned better demand conditions and a pick-up in sales.
"Aggregate new order intakes rose substantially in July, recovering the growth momentum lost in June. The latest increase was in fact the most pronounced since last November, with quicker expansions recorded in all three broad areas of the manufacturing industry," the release said.
Although international markets contributed to the latest upturn in total order books, there was a noticeably slowdown in external sales. New export orders rose at a moderate pace that was the weakest in the current four-month period of growth, it said.
"Encouragingly, goods producers registered a softer increase in their expenses during July. Robust demand for raw materials meant that cost burdens continued to rise, but the rate of inflation slipped to an 11-month low. Chemicals, electronic components, metals, textiles and transportation fees were reportedly up on the month," the release said.
Similar to input costs, there was a softer upturn in factory gate charges during July, one that was the slowest in four months.
Inflation rates, for both input prices and output charges, were most acute in the capital goods segment. The weakest rises were noted in the intermediate goods sub-sector.
"Despite the solid performance of the manufacturing industry, overall job creation remained subdued. The latest increase in employment was marginal and broadly similar to those seen in the current five-month sequence of growth. The vast majority of firms (98%) opted to leave workforce numbers unchanged amid a lack of pressure on operating capacity.
"Indeed, outstanding business increased only marginally at the start of the second fiscal quarter and at a rate that was similar to those registered over the past seven months.
"Another factor that constrained hiring activity was future uncertainty. Despite improving from June's 27-month low, the overall level of business sentiment was muted in the context of historical data. In fact, 96% of manufacturers forecast no change in output from present levels over the course of the coming 12 months," the release said.
The survey showed that suppliers to the Indian manufacturing sector were able to deliver goods in a timely manner in July, with vendor performance improving marginally for the second straight month. Lead times shortened despite a substantial uptick in input buying.
Subsequently, goods producers noted one of the fastest increases in their input holdings since data collection started in early-2005. On the other hand, inventories of finished products continued to decline.
Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence, said: “The Indian manufacturing industry recorded a welcome combination of faster economic growth and softening inflation during July."
"Output expanded at the fastest pace since last November, a trend that was matched by the more forward-looking indicator new orders. Although the upturn in demand gained strength, there were clear signs that capacity pressures remained mild as backlogs rose only marginally and job creation remained subdued.
"Purchasing activity growth ticked higher in July and firms were successful in their efforts to obtain inputs amid a second consecutive improvement in supplier performance. This in turn supported a near-record increase in inventories of raw materials and semifinished goods as well as a softer upturn in input costs.
"With incidences of shortages diminishing, the rate of input cost inflation eased to an 11-month low in July, subsequently dragging down the rate of increase in output prices to the weakest in four months," she added.