HSBC India Manufacturing PMI rises to two-year high in December 2014

PMI data signals robust growth at Indian manufacturers says HSBC

Indian goods producers ended 2014 in a higher gear, with business conditions improving at the quickest pace in two years in December. Accelerated growth of the manufacturing sector was reflected by faster expansions in output, new business and foreign orders. Latest data also painted a brighter picture in terms of prices, as inflationary pressures eased during the month.

Adjusted for seasonal factors, the headline HSBC India Purchasing Managers' Index (PMI) - a composite indicator designed to give an accurate overview of manufacturing operating conditions - climbed to a two-year high of 54.5 in December, up from 53.3 in the prior month. Business conditions improved at a faster pace in all three market groups during the month, with the sharpest expansion seen in consumer goods.

Output in the Indian manufacturing sector rose in line with the headline index in December, with growth picking up to the quickest in two years. According to a number of survey participants, the latest rise in production was supported by stronger order books. Consumer goods was the best performing of the broad sectors monitored.

Latest data reflected reports of improving demand in December, as new orders increased for the fourteenth consecutive month. Moreover, the rate of expansion was marked overall and the fastest since the end of 2012. Similarly, Indian manufacturing companies registered a further rise in new export business in December. New work from abroad expanded at the quickest pace since April 2011.

Reflective of further growth of output and new orders, input buying among Indian goods producers increased in December. The rate of expansion accelerated to the most marked in the current 14-month sequence of growth. Subsequently, the pace of pre-production inventory building picked up to the sharpest in more than two years. Furthermore, stocks of finished goods held by Indian manufacturers rose at the fastest rate since the survey began in April 2005.

Meanwhile, contrasting with continued growth of production and incoming new work, staffing levels in India's manufacturing economy declined in December. That followed two successive months of slight job creation, although the pace of contraction was fractional overall. Job losses were evident in two of the three surveyed sub-sectors, with the exception being intermediate goods.

Finally, higher prices paid for metals, chemicals and electronics placed upward pressure on input prices in December. That said, the rate of cost inflation eased to the slowest in more than five-and-a-half years and was well below the long-run series average. Weaker cost pressures were mirrored by a relatively subdued rise in selling prices during the month.

Commenting on the India Manufacturing PMI survey, Pranjul Bhandari, Chief India Economist at HSBC said, "Manufacturing activity momentum accelerated to a two-year high in December, led by a healthy increase in new orders from both at home and from abroad. A steep rise in new orders from the consumer sector more than offset a slowdown in new order growth from investment goods. In our view, a rise in the latter is critical for a meaningful pick-up in economic growth. In line with falling commodity prices over the last few months, input price inflation was modest, and this trend was also mirrored in output prices. With the disinflationary trend gaining ground, the RBI is expected to find space for some rate cuts in 2015."

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