The growth in domestic manufacturing sector slowed down in August though the domestic demand continued to drive recovery despite lower margins. The HSBC Market Manufacturing Purchasing Managers Index (PMI), a seasonally adjusted headline index designed to measure the overall health of the manufacturing sector, stood at 53.2 last month down from 55.4 in July.
The growth was least since April though the survey covering over 500 manufacturing companies showed that approximately one-fifth of companies raised activity levels to meet market demand, against around 12 per cent that cut production.
“While India’s manufacturing PMI remains comfortably above 50, it is disappointing to see the index slip in August to a level that is 2.5 points below its recent high in May this year. This is more likely to represent a pause for breath than a peaking out of the industrial cycle,” said Robert Prior-Wandesforde, senior Asian Economist, HSBC.
A better economic situation, successful marketing activities and good standing with clients were given by the respondents as the primary factors underlying the rise though new export order growth remained subdued.
Wandesforde added that the Indian economy would show more impact of the fiscal and monetary stimulus and exports especially to the rest of Asia would also recover. Some of the respondents to the survey said the demand from the UK had picked up.
Indian manufacturers also witnessed pressure on their margins with the input prices index rising to 57.7, the highest since September 2008 when the global meltdown hit the economy, though the out prices index, remained flat at 50.
“Companies that raised their charges did so predominantly to protect their profit margins against rising cost burdens though intense competition had prevented price increases,” said the survey.
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Commerce and industry minister Anand Sharma had last week stated the index of industrial production (IIP) for the month of July has shown a growth of 7 per cent. The IIP measured by government agencies rose steeply by 7.8 per cent in June and analysts were expecting that due to a meager 1.8 per cent growth in core sector industries in July, IIP may also witness a sharp fall.
The government data released yesterday also showed that there was a recovery in the April-June period with the country’s gross domestic product rising 6.1 per cent compared to the previous quarter’s 5.8 per cent.
The PMI survey also noted that higher new order and production levels led the manufacturers to purchase more inputs and enlarge their stocks of raw materials in August. Both buying activity and pre-production inventories rose solidly though at softer rates than in July. The rise in purchases remained above the average for the previous year.
The survey pointed out that the absence of capacity pressures was indicated by a second successive decrease in staffing numbers across the industry. Employment in the industry has fallen in seven of the past nine months.
“The rate of job shedding accelerated to the fastest since March, but was nevertheless only marginal. By far the greatest proportion over 96 per cent of the survey panel maintained their workforces,” said the survey.