HSBC India Manufacturing PMI rises to four months high in May 2015

Growth of output and new orders strengthens the HSBC India Manufacturing PMI

The upturn in the Indian manufacturing sector gathered pace in May, with levels of production and new orders rising at the fastest rates since the opening month of 2015. Meanwhile, a further increase in input costs was seen and, consequently, charges were raised following a decline seen in the preceding month.

Up to a four-month high of 52.6 in May, from 51.3 in April, the seasonally adjusted HSBC India Purchasing Managers' Index (PMI) signalled a further improvement in business conditions. Furthermore, gains were seen in all three monitored sub-sectors.

Manufacturing output increased for the nineteenth month running, with the rate of growth marked and the fastest since January. The sharpest rise was reported by consumer goods producers. Solid increases were also seen in capital and intermediate goods production. Underpinning higher output was improved demand from the domestic and foreign markets. The total volume of new work received increased for the nineteenth successive month and at the quickest pace since January. Growth was led by capital goods producers.

Overseas demand also rose, although the rate of expansion moderated. This mainly reflected a reduction in foreign orders received by investment goods firms. Despite the uptick in growth, manufacturing employment was broadly unchanged in May. Over 99% of panellists reported unchanged staffing levels, citing uncertainty about the sustainability of growth.

Input price inflation quickened during May, but remained weaker than the series average. Manufacturers reported higher purchasing costs for chemicals, energy, metals and textiles. Stronger cost rises were noted in all three monitored categories.

Following a reduction seen in the previous month, output prices were raised in May. That said, the latest increase in factory gate prices was only slight. Where a rise in charges was reported, this mainly reflected increasing input costs.

Boosted by stronger output growth, buying activity rose at an accelerated rate in May that was the quickest since last December. Faster increases in quantity of purchases were noted in all three broad areas of the manufacturing economy.

May data indicated that stock holdings were accumulated. Pre-production inventories increased for the twelfth straight month, albeit modestly. Holdings of finished goods also rose, with panellists indicating that stock building attempts reflected the need to fulfil existing orders.

Finally, average lead times shortened in May. However, vendor performance improved to broadly the same extent as in the preceding month.

Commenting on the India Manufacturing PMI survey, Pollyanna De Lima, Economist at Markit said: "PMI data signalled a further robust expansion of the Indian manufacturing economy in May. Both output and new order growth accelerated to four-month highs, whereas the rise in export orders lost traction. The outlook for the sector is, however, clouded by a stagnant jobs market as firms remain uncertain about the sustainability of the upturn. Input cost inflation ticked higher and output prices were raised in May, but inflation rates are nonetheless weak in the context of historical data. This indicates that further rate cuts are still on the horizon.

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