Output growth accelerates in March amid stronger increase in new orders: HSBC Manufacturing PMI

Output rose for the seventeenth consecutive month in March and at a solid pace that was faster than in February

March PMI data pointed to an overall improvement in manufacturing operating conditions across India. A stronger increase in new orders led firms to boost production levels and raise buying activity. Despite this, payroll numbers were unchanged over the month as an increase in average cost burdens deterred firms from hiring additional workers.

Up from 51.2 in February to 52.1 in March, the headline HSBC India Purchasing Managers' Index (PMI) highlighted a further improvement in the health of India's manufacturing economy. That said, the average reading for the first three months of 2015 was lower than seen in the final three months of 2014.

Output rose for the seventeenth consecutive month in March and at a solid pace that was faster than in February. The latest increase in production was broad-based by sector with growth signalled by consumer, intermediate and investment goods companies.

Underpinning the expansion in output was a quicker rise in new order flows. According to survey participants, demand conditions improved. Sub-sector data highlighted growth across the three monitored categories. Continuing the trend that started in October 2013, new export orders increased in March. Although solid, the overall growth rate moderated to the weakest in ten months.

There was evidence of ongoing pressure on the capacity of manufacturers' operations, as unfinished business increased for the thirty-second consecutive month. Furthermore, the rate of accumulation quickened since February.

March saw a return of inflationary pressures across India's manufacturing economy. After falling in the prior month, purchase costs rose at a marked rate that was the most pronounced since August 2014. According to panellists, chemicals, metals, plastics, energy and paper had all risen in price. Output charge inflation quickened to the strongest in four months, as firms attempted to sustain profit margins by raising their tariffs.

Amid evidence of new business growth, Indian manufacturers raised their buying levels in March. Quantity of purchases increased at a marked pace that was the strongest since December 2014. Subsequently, pre-production inventories rose again. The rate of accumulation in stocks of purchases was modest, but quicker than in the previous month.

Manufacturing employment stabilised in March, having fallen in February. Staffing levels have barely changed over the past 14 months. Exactly 100% of survey participants reported unchanged workforce numbers since the prior month.

Commenting on the India Manufacturing PMIsurvey, Pollyanna De Lima, Economist at Markit said : "Momentum is building in manufacturing as the sector begins to build up ahead of steam. Stronger expansions of output, new orders and stocks of purchases all contributed to a higher PMI reading in March. To add to the good news, all three monitored market groups delivered faster growth, with consumer goods production continuing to lead the way."

"Employment stabilised during March and has showed little-change over the past 14 months; a signal that hesitation still prevails among firms. Faster increases in incoming new work, buying levels and backlogs, however, indicate that the subdued labour market is likely to recover in coming months."

"Of concern was a marked rise in input costs, which has resulted in firms raising their tariffs once again. Greater cost burdens add to the pressure on margins which could potentially be squeezed by competitive pressures."

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