Manufacturing PMI at 5-month high in Nov

But power crunch keeps output growth in check

The widely tracked HSBC Purchasing Managers’ Index (PMI) — a measure of factory activity — jumped to a five-month high of 53.7 points in November from 52.9 in October.

PMI has remained above 50, below which is the contraction zone, for more than three years now, said a statement released on Monday by Markit Economics, a financial information firm which compiles the data. The robust numbers in November were attributed to strong growth in new orders by Markit Economics.

“The manufacturing sector gained momentum. Thanks to a strong pick-up in new orders, which lifted output growth,” HSBC Chief Economist for India and Asean Leif Eskesen said.

November was the month of festivals. PMI measures growth on a month-on-month basis because of which seasonality is not entirely factored into it.

The data of factory activity comes after Friday’s dismal numbers for manufacturing in the gross domestic product (GDP) data for the second quarter were released.

However, HSBC said, output growth remains constrained by power shortages. Backlogs of work still rose, though at a slower pace than in October. “Output remains constrained by continued power shortages, and stocks of finished goods were, consequently, drawn down again to meet the rise in demand,” Eskesen added.

Manufacturing grew just 0.8 per cent in Q2 of 2012-13, marginally better than 0.2 per cent in the previous quarter but lower than 2.9 per cent in the corresponding period of last financial year. This dragged down GDP growth to 5.3 per cent in the second quarter of this financial year against 6.7 per cent in the corresponding period of the previous fiscal.

The GDP growth was lower than 5.5 per cent in the first quarter of this year but was same as the one recorded in the fourth quarter of 2011-12, which was a three-year low.

Electricity generation slowed to an eight-quarter low of 3.5 per cent in the second quarter of this financial year, which was also a reason for the muted manufacturing growth.

On inflation, Markit Economics said prices charged by manufacturers in India increased during November, in line with higher input costs.

Inflation rate was robust, and faster than in October, which was mainly driven by higher raw material and diesel costs. This led to the latest increase in input prices.

“Inflation picked up again as higher raw material prices increased input costs for firms and they had enough pricing power to pass these on to the end consumers due to the firm demand conditions,” Eskesen said. “PMI numbers suggest RBI should continue to abstain from easing (rate).”

Uncomfortable inflation has been the primary reason the Reserve Bank of India (RBI) has cited as reason to not cut rate. RBI Governor D Subbarao has resisted calls for growth-propping rate cut for some time now. The Reserve Bank is scheduled to announce its mid-quarter monetary policy review on December 18.

Inflation as measured by all indices has remained elevated, and wholesale price index-based inflation has remained above the Reserve Bank’s comfort zone of four to five per cent for nearly three years now.

Meanwhile, job creation was recorded in the manufacturing sector in November for the ninth successive month, though the pace of expansion was only slight, HSBC said. The November reading of PMI points to the fact that manufacturing has gained momentum in the last few months, after it registered the weakest pace of growth rate in nine months in August.