Strong improvement in manufacturing conditions: Nikkei India Manufacturing PMI

Nikkei India Manufacturing rises to 52.6 in November 2017

The Indian manufacturing sector recorded its strongest improvement in business conditions for 13 months, recording marked and accelerated increases in output and new orders. Furthermore, manufacturing companies observed a renewed increase in new export orders during November.

On the job front, greater production requirements led to the fastest rate of employment creation since September 2012. Meanwhile, there was a pick-up in inflationary pressures, with input costs increasing to the greatest extent since April.

At 52.6 in November, the Nikkei India Manufacturing Purchasing Managers Index (PMI) rose from 50.3 in October. This indicated a substantial improvement of operating conditions in India's manufacturing sector. At the broad market group level, growth in consumer and intermediate goods offset a marginal deterioration in investment goods category.

The upward movement in the headline index was driven by a marked increase in output. Furthermore, the rate of expansion quickened to the strongest since October 2016. A combination of higher order book volumes and a decrease in GST rates reportedly contributed to greater production. That said, the rate of growth remained weaker than the trend seen since the inception of the survey in March 2005.

Following the negligible decline in the prior month, new orders increased in November. Although weaker than the long-run average, the rate of growth accelerated to the fastest in 13 months. The only market groups category to not record a rise in new work was capital goods, as was the case with output.

At the same time, overall new export orders increased for the first time in three months, albeit marginally.

It was a positive picture for factory employment in November, with manufacturers raising their payroll numbers at the sharpest rate since September 2012. Panellists commented on greater inflows of new work. All three monitored broad categories registered expansions, led by intermediate goods.

Amid reports of delayed payments by clients, outstanding business rose in November. That said, the rate of growth was marginal. Manufacturers attempted to replenish their input stocks by purchasing greater quantities of raw materials and semi-finished items in November. That said, the overall rate of growth was modest and below the long-run series average. Meanwhile, pre-production inventories declined for the fifth consecutive month in November.

On the price front, input cost inflation quickened to the fastest since April and was solid overall. Among the items reported as being up in price were chemicals, steel and petroleum products. While input prices rose at a stronger pace, the rate of output charge inflation was marginal. Anecdotal evidence indicated that firms were unable to fully pass on higher cost burdens to customers amid intensive competitive conditions.

Commenting on the Indian Manufacturing PMI survey data, Aashna Dodhia, Economist at HIS Markit and author of the report, said: India's manufacturing economy advanced on its path to recovery as disruptions from the recent tax reform (GST) continues to diminish. Growth in output and new orders picked up to the fastest since October 2016, reportedly supported by reductions in GST rates and stronger underlying demand conditions. Nevertheless, the headline PMI remained below the average seen since the inception of the survey in March 2005.

"Stronger factory production levels translated into the fastest rate of employment creation since September 2012. Meanwhile, export growth rose for the first time in three months as overseas demand for Indian goods improved.

"Underlying data indicated that the central bank is less likely to adopt an accommodative stance as input cost inflation intensified to the fastest since April. At the same time, firms were unable to fully pass on higher cost burdens to price-sensitive clients.

"The current phase of expansion led to business sentiment picking up as growth momentum seems likely to continue over the near-term."

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