Stronger upturn in new work boosts production growth in July: Nikkei India Manufacturing PMI

The Manufacturing Purchasing Managers' Index (PMI) is based on survey results conducted on manufacturing firms throughout the country. A reading above fifty suggests the manufacturing sector is expanding, while a reading below fifty suggests the opposite. A reading that is stronger than forecast is generally supportive (bullish) for the INR, while a weaker than forecast reading is generally negative (bearish) for the INR, explains investing.com.

According to the survey report, the performance of India’s manufacturing economy continued to improve in July, with a stronger expansion in new business contributing to faster
increases in output and buying levels. Although some firms added to their workforces, overall job creation was negligible.

Meanwhile, input cost inflation softened and while output prices were raised at the quickest pace in three months, the rate of charge inflation was only slight, the survey reported.

Excerpts from the survey:

"Posting a four-month high of 51.8 in July (June: 51.7), the seasonally adjusted Nikkei India Manufacturing Purchasing Managers’ Index, indicated a further improvement in overall business conditions across the sector. The upward movement in the headline index came from stronger contributions from four of its five components, the exception being suppliers’ delivery times.

July data highlighted ongoing pressure on the capacity of Indian manufacturers, as outstanding business rose for the second month in succession. Furthermore, the rate of backlog accumulation was the fastest in one-and-a-half years.

Despite this, hiring trends remained relatively muted. Only 1% of surveyed companies took on additional workers in July, while almost all the remaining respondents signalled no change in payroll numbers.

Underpinned by stronger growth of new orders, businesses purchased additional inputs for use in the production process. The rate of expansion climbed to an 11-month high. Subsequently, stocks of raw material and semi-finished goods rose.

Conversely, holdings of finished goods declined in July, but to the least extent in six months. Some respondents commented on the fulfilment of orders from stocks.

On the price front, July saw input costs rise at the slowest pace in five months. Although charge inflation accelerated, the rate of increase was only slight and remained below its long-run average.

Finally, supplier performance improved for the first time since February, albeit marginally."

Commenting on the Indian Manufacturing PMI survey data, Pollyanna De Lima, Economist at Markit and author of the report, said: “India’s manufacturing economy is reviving at the beginning of the second half of 2016 after the slowdown seen in the April-June quarter, as growth of both production and new orders continues to strengthen in July. Although output expanded at the fastest rate since March and backlog accumulation intensified, businesses refrained from creating jobs. The ongoing muted trend for employment indicates that companies remain somewhat uncertain regarding the sustainability of the upturn."

He added, “Delving deeper into the data we see that the consumer goods sub-sector kept its place as the  prime driver of the overall upturn. Although demand for plant and machinery improved, investment goods output dropped. Separately, the depreciation of the rupee supported Indian exporters as survey data pointed to the quickest rise in new business from abroad since January.

Pollyanna De Lima also said, “Offering respite to firms, cost burdens rose at a modest and slower rate and the improving demand environment meant that businesses were able to raise their own charges in July. With inflation rates remaining lower than their respective long-run averages, it wouldn’t be surprising to see the RBI loosening monetary policy at its August meeting in an effort to encourage investment.