Purchasing managers index jumps to four-month high

Showcasing signs of recovery in the manufacturing sector, the HSBC India PMI (purchasing managers index) jumped to a four-month high in May at 52.6 from 51.3 in April.

The moderately better PMI in May in comparison to April has been attributed to a pick-up in output and new orders.

According to the latest data, the indicator for the future manufacturing activity, order-to-inventory ratio, saw marginal improvement from 1.03 in April to 1.04 in May,

The order-to-inventory ratio grew on the back of faster pace of new orders than the inventory stocks of finished goods, said the PMI report.

The report elaborated that in the month under review, many firms managed to cut down on backlogs of work and supply delivery timeliness improved. Domestic order flows too increased despite the slowdown in new export orders.

However, manufacturers faced the heat of price pressures due to rising fuel costs and a weaker rupee.

Higher purchasing costs were reported for manufacturers of chemicals, energy, metals and textiles.

High energy and raw material costs will prompt manufacturers to pass on the cost increases to end prices, the report said.

Indicators of inflation also picked up with input prices rising from 51.6 in April to 54.2 in May, while output prices rose from 49.7 in April to 51.0 in May.

The analysis for India by the global banking giant suggested that inflation momentum is below trend and that there is enough space for a final 25 basis points repo rate cut by the Reserve Bank of India (RBI) in its June 2 policy meeting to support growth.

Most sub-indices within the PMI have sharply moved up in relation to April-- when growth slowed down as per PMI.

However, the report warned of the threat from a rising levels of inflation if the monsoon fails with no further decline of oil prices.

Much of the fall in inflation could be behind us, as per the HSBC PMI.