Output and new orders rising simultaneously for the fifteenth consecutive month
Despite falling from December's two-year record of 54.5 to 52.9, the headline HSBC India Purchasing Managers' IndexTM (PMITM) - a seasonally adjusted indicator designed to give an accurate overview of manufacturing operating conditions - remained consistent with a solid improvement in business conditions in January. Moreover, the latest expansion was the fifteenth in as many months. Sector data highlighted consumer goods as the best performing of the three market groups for the third month in a row.Latest data signalled sustained growth of India's manufacturing economy at the start of 2015, with output and new orders rising simultaneously for the fifteenth consecutive month. As a result, business conditions improved at a solid rate, albeit more slowly than in the previous month. On the price front, lower prices paid for metals, chemicals, plastics and energy led to the weakest rise in input costs in the current 70-month period of inflation.
The overall improvement in the Indian manufacturing sector was underlined by further output growth in January. Production rose at a robust pace, extending the current sequence of expansion to 15 months. Survey responses generally attributed higher output to stronger order books.
Amid reports of improving demand, latest data indicated that new orders increased for the fifteenth successive month in January, albeit at a slower rate than seen in December. Among the monitored sub-sectors, by far the sharpest rise occurred in consumer goods.
Meanwhile, having accelerated to the highest since April 2011 in the previous month, growth of new export business moderated in January. Nonetheless, the pace of expansion remained solid overall and stronger than the historical average.
Growth of output and new business continued to have little impact on employment in January, as workforce numbers rose only marginally during the month. Concurrently, backlogs of work rose at the fastest rate in a year, with some companies commenting on capacity pressures being applied by rising order book volumes.
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Higher new work intakes and subsequent production requirements also led to a further rise in purchasing activity at the start of 2015. Among the monitored subcategories, input buying rose quickest in consumer goods. Similarly, input stocks and post-production inventories at Indian goods producers increased in January. That said, the rates of expansion eased from the highs seen in the previous month.
Input costs faced by Indian manufacturers continued to increase in January, extending the current period of inflation, which began in April 2009. That said, the rate of inflation slowed to the weakest in that sequence, helped by lower prices paid for metals, chemicals, plastics and energy. As a result, output charges rose only fractionally during the month.
Commenting on the India Manufacturing PMI survey, Pranjul Bhandari, Chief India Economist at HSBC said, "Manufacturing activity continued to signal improvement in January, though the rate of growth slipped to a three month low. The slip can partly be attributed to consolidation after two months of impressive upticks. New orders, both from domestic and international sources, also continued to grow, though at a slower pace than in December. New orders were strongest in the consumer goods sector. On the inflation front, growth in input and output prices moderated further due to cheaper commodity prices. Sluggish growth and falling inflation further reinforces our view that the RBI should deliver upfront rate cuts. We expect the repo rate to be lowered by 75bp in the first half of 2015."
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