Signalling moderation in factory output growth, the HSBC purchasing managers’ index (PMI) on Thursday showed a slight deceleration in expansion of manufacturing activities in February, against January figures.
PMI manufacturing dropped to 56.6 points in February from 57.5 points in January on the back of slight weakening in output growth, falling employment and rising output inflation.
PMI above 50 shows growth, while a reading below that level denotes contraction.
PMI manufacturing had grown the highest in eight months in January. However, official data was not too optimistic. The crucial eight core industries data, which has close to 38 per cent weight in the index of industrial production where manufacturing dominates, grew a meek 0.5 per cent in January.
PMI is based on a survey of some 500 private sector companies and is calculated on a month-on-month basis, while official data is encompassing and is calculated year-on-year.
Advance GDP data pegged manufacturing to 3.9 per cent for 2011-12, which is less than 4.3 per cent of 2008-09 when India was hit by the global financial crisis.
Manufacturing in December grew a bleak 1.8 per cent, whereas PMI manufacturing leaped to 54.2 points that month from 51 points in November.
Against PMI moderating in February, official data for manufacturing could show a bit of rebound because of low base.
“The data compilation for both IIP and PMI is different,” said Anis Chakravarty, director, Deloitte, Haskins and Sells.
Jyotinder Kaur, economist, HDFC Bank, said that PMI needs to be viewed with some degree of caution.
“PMI uses a different sample set compared with the IIP and does not track the core or infrastructure sectors accurately,” said Kaur.
While the PMI trend indicates that manufacturing could be bottoming out, it is difficult to draw a similar inference for the core sector.
“The PMI, therefore, needs to be viewed with some degree of caution. Just by reading the PMI, we cannot come to a conclusion about the industrial sector as a whole,” she said.
Markit Economics, which compiles PMI, said in a statement that the new orders touched a 10-month high and a rise in new export business was recorded for the fourth successive month in February. The increase weakened since January, reflecting fragile economic conditions in key export markets, it added.
“Output growth eased and employment fell, but domestic orders grew at a faster clip. While input costs rose less fast, sequential inflation remains high by historical standards,” said Leif Eskesen, Chief Economist for India and Asean at HSBC.
As the output inflation was recorded up by PMI data, Eskesen said that the numbers were premature for RBI to cut policy rates in March. “Easing cycle, expected to commence in April-June, will have to be gradual,” he added.
However, Shubhada Rao, chief economist, YES Bank, said that easing inflation and falling investment rate strengthens the call of a 50 basis points cut in repo rate in the upcoming monetary policy. However, the recent uptick in crude oil prices may strain the dovish tone of RBI, she added.