Nikkei India Manufacturing PMI drops to 25-month low in November 2015

Input cost inflation accelerated to the strongest since May 2015, whereas factory gate prices were raised at a weaker rate

The health of India's manufacturing economy improved for the twenty-fifth successive month in November, although to the least extent in this sequence. The latest PMI data showed slower increases in incoming new business and output, while subdued demand growth led firms to keep workforce numbers broadly unchanged. Meanwhile, input cost inflation accelerated to the strongest since May, whereas factory gate prices were raised at a weaker rate that was marginal overall.

Falling for the fourth consecutive survey period to a 25-month low of 50.3 in November (October: 50.7), the seasonally adjusted Nikkei India Manufacturing Purchasing Managers' IndexTM (PMI)TM - a composite single-figure indicator of manufacturing performance - highlighted a marginal improvement in business conditions across the sector. Sub-sector data highlighted consumer goods as the best performing category, while operating conditions at intermediate goods companies deteriorated for the first time since December 2013.

Indian manufacturers indicated that new business inflows rose in November, marking a 25-month sequence of expansion. That said, the rate of growth was the weakest over this period. There were reports that growth of new work was hampered by subdued domestic demand and competitive pressures. Mirroring the trend for new orders, production increased at the softest pace in the current 25-month sequence of expansion.

New business from abroad increased further in November. Although only slight, the rate of growth was the strongest in three months. New export orders rose at consumer and intermediate goods firms, while a contraction was seen in the capital goods category.

Following a marginal increase in the prior month, manufacturing employment in India was broadly unchanged in November. This was signalled by the respective index recording only fractionally above the no-change mark of 50.0.

Outstanding business held by Indian goods producers rose in November, amid evidence of delayed payments from clients and labour shortages.

Inventory levels decreased during November. Stocks of purchases declined for the first time in one-and-a-half years, which panellists associated with falling quantities of inputs bought. Holdings of finished goods were depleted at a marked rate that was the second-fastest in three years.

Input cost inflation accelerated to the strongest in six months during November, but remained below the long-run series average. Companies reported higher prices paid for metals, textiles and food. Factory gate charges were, subsequently raised. The rate of inflation was, however, only marginal.

Commenting on the Indian Manufacturing PMI survey data, Pollyanna De Lima, Economist at Markit and author of the report, said:

"November PMI data point to tepid manufacturing growth across India, with gloomy domestic demand resulting in the weakest expansion in production for 25 months. Signs of the sector slowing have been building up, as growth of both new orders and output has eased in each of the past four months. The disappointing news is accompanied by a stagnant labour market in the sector.

"Digging deeper into detail, the intermediate goods sub-sector drove the deceleration in growth. New business inflows and output in this category fell for the first time since December 2013. While investment goods producers saw a rebound in November, the consumer goods sector remained the bright spot.

"The slowdown in growth combined with weak inflationary pressures support further rate cuts. Input cost and output charge inflation as measured by the survey were much lower than their respective long-run averages."

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