PMI points to boost in manufacturing

Manufacturing activity rose a four-month high in June, albeit the pick-up was too gradual, shows a widely-tracked HSBC Purchasing Managers’ Index (PMI).

The index rose 51.5 points in June from 51.4 points in the previous month. A reading above 50 denotes expansion while one below 50 implies contraction.

PMI has been slowly picking up pace since April. However, it was nowhere close to 52.5 points in February.

The slow pace suits the Reserve Bank of India (RBI), as otherwise higher growth would push up inflation, said Frederic Neumann, co-head of Asian Economic Research at HSBC.

“The muted pace will suit the RBI: since input and output prices are rising as well, faster growth would only stoke inflation and require tightening,” he said.

Even then, inflation of final products rose to an eight-month high. Also, higher prices paid for metals, plastics, textiles, food and energy led to a further increase in average purchase prices, said Markit Economics, a financial information firm which compiles the PMI data.

Input cost and output price inflation accelerated over the month, although in both cases the rates of increase were below their respective long-run averages, it said.

Markit Economics said greater domestic and foreign demand led companies to increase production levels further.

Buying activity expanded at a faster rate, while employment continued to rise.

The financial information firm said operating conditions improved for the eighth month in succession, although modestly.

Output expanded at the fastest pace since February, with survey respondents indicating that growth reflected the signing of new contracts.

All three broad areas of the manufacturing sector registered higher production volumes, led by consumer goods producers.

The sharpest rise was noted at consumer goods firms, a finding which contradicts the latest official index of industrial production (IIP). Both consumer durables and fast moving consumer goods fell in May IIP.

The June data highlighted a marked and accelerated expansion of new export orders received by Indian manufacturers. Officially, exports grew by double digits in May. If PMI is any indicator, exports may continue their upsurge in June as well.