India’s manufacturing PMI rises to 52.3 in July’18

6th Aug 2018

Manufacturing conditions across India improved at a modest and slower pace at the start of the quarter, reflecting softer rises in output, new orders and employment. On the price front, input cost inflation eased from June’s multi-year high and was broadly in line with the series trend. Subsequently, firms raised their output charges at a modest and slower pace. Meanwhile, business sentiment towards the 12-month outlook for output strengthened to a three-month high.

The Nikkei India Manufacturing Purchasing Managers’ Index (PMI) posted 52.3 in July, down from 53.1 in June. Although modest, the latest improvement in the health of the manufacturing sector was the second-strongest (behind June) since January.

Indian manufacturing output rose in July, thereby stretching the period of expansion to 12 months. Despite easing from June’s six-month high, the latest upturn was marked and stronger than the current sequence of growth. Anecdotal evidence pointed to favourable market conditions.

New business rose for the ninth consecutive month in July. Moreover, the rate of expansion was marked despite easing from June’s six-month high. Panellists attributed new client wins to strong underlying demand.

Mirroring the trend for new business, new export orders rose for the ninth month in succession during July. Although softening slightly since June, the rate of expansion was solid. Panellists commented on strong demand from international markets for Indian goods.

Reflecting sustained periods of growth in output and new orders, firms were encouraged to raise their staffing levels for the fourth successive month in July. However, staff recruitment slowed to a marginal pace. At the market group level, jobs growth was evident in intermediate and investment goods.

Increased production requirements also prompted firms to engage in input buying for the second consecutive month during July. That said, the rate of growth remained modest. Meanwhile, manufacturing companies raised their preproduction inventories during July, albeit only marginally.

Indian manufacturing companies faced higher input costs during July, thereby stretching the current period of inflation to 34 months. The rate of increase eased from June’s near four-year high and was in line with the series trend. Survey respondents mentioned that steel and crude oil were among the key items that increased in price.

Looking ahead, Indian manufacturing companies held optimistic projections for output in the next 12 months. Expected improvements in demand, promotional activities and expansion plans were the key factors behind confidence. The level of positive sentiment strengthened to a three-month high during July, but remained below the historical average.

Aashna Dodhia, Economist at IHS Markit and author of the report, said, ”The recent improvement in Indian manufacturing conditions lost some impetus in July, with softer rises in output, new orders and employment all recorded. However, we must not lose sight of the fact that the sector continued on a steady expansionary path, as production and new business rose at marked rates. Moreover, July survey data pointed to strong demand from both domestic and international sources.

It will be reassuring for policy makers to see input cost inflation easing from June’s near four-year high to a level more in line with the series trend.

Meanwhile, business sentiment strengthened to a three-month high, but remained below the historical average as some respondents expressed fears of a potential slowdown in the year ahead. Indeed, IHS Markit recently downgraded its forecast of real GDP growth to 7.1% in (FY) 2018, reflecting rising headwinds to expansion, including high oil prices, large capital outflows from emerging markets, and tighter domestic monetary policy.”

Source: IRIS