Manufacturing production, new orders expand further: IHS Markit report

The health of Indian manufacturing sector continued to strengthen in December with manufacturers stepping up production and input buying amid efforts to rebuild their inventories, IHS Markit said

The health of Indian manufacturing sector continued to strengthen in December with manufacturers stepping up production and input buying amid efforts to rebuild their inventories following business closures earlier in the year, according to the latest IHS Markit Manufacturing Purchasing Managers' Index (PMI) released on Monday.While firms were able to lift input stocks and did so at the quickest rate in nearly a decade, holdings of finished goods decreased sharply due to ongoing increases in new work. One area that failed to improve was employment with jobs shed once again at the end of 2020.

Meanwhile, raw material scarcity at suppliers caused delivery delays and the fastest rise in input costs for over two years.

The seasonally adjusted IHS Markit India Manufacturing PMI was at 56.4 in December, a tick higher than November's reading of 56.3 and above the critical 50 threshold for fifth straight month. The latest figure was consistent with a marked improvement in business conditions across the sector.

Reflecting the loosening of COVID-19 restrictions, strengthening demand and improved market conditions, factory orders increased. In response, firms lifted production again. In both cases, rates of expansion remained sharp despite easing to four-month lows.

International demand for Indian goods rose but anecdotal evidence suggested that growth was hampered by the COVID-19 pandemic. As a result, new export orders increased at the slowest pace in the current four-month sequence of expansion.

Goods producers continued to make additional input purchases, extending the current sequence of growth to five months. Furthermore, the rate of expansion was sharp and accelerated from November.

"When we combine the latest three months, we see that the performance of manufacturing industry for the third quarter of fiscal year 2020-21 was notably better than in the second quarter," said said Pollyanna De Lima, Economics Associate Director at IHS Markit.

"It is important to emphasise the broad-based nature of recovery with marked expansions in both sales and output noted across each of the three monitored sub-sectors," she said in a statement.

The rise in input buying in turn helped firms to lift their preproduction inventories. Stocks of purchases grew sharply and at the quickest pace since March 2011.

Conversely, manufacturers saw their stocks of finished goods decline again at the end of the year. The rate of depletion was steep and faster than any seen prior to April. According to survey participants, post-production inventories fell due to strong sales growth.

The IHS Markit India Manufacturing PMI is compiled from responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers. The panel is stratified by detailed sector and company workforce size based on contributions to GDP.

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