Marked rise in sales underpins production growth: Nikkei India Manufacturing PMI

Nikkei India Manufacturing PMI eases to 53.2 in December from 54 in November

The health of India's manufacturing economy improved further at the end of the year, as companies continued to scale up production and employment in response to strong inflows of new business. December data also brought news of a notable slowdown in input cost inflation, to a 34-month low, which translated into broadly no change in factory gate charges.

Posting 53.2 in December, from 54.0 in November, the Nikkei India Manufacturing Purchasing Managers Index (PMI) was consistent with a further improvement in operating conditions across the sector. The latest figure was the second-greatest in 2018 and contributed to highest quarterly average since Q3 FY 2012.

 

Growth of new work remained robust at the end of the quarter, with the upturn the second-quickest since December 2017. Companies that experienced greater inflows of new orders mentioned expanded client bases, stronger demand and fruitful advertising. International markets contributed to sales growth, with exports rising for the fourteenth month in a row.

Despite easing from November, the rise in production was among the quickest seen in 2018. Firms suggested that greater sales and technological progress supported the increase in output. Growth was curtailed by competitive pressures, labour issues and challenging public policies.

Employment continued to expand in December, but companies still signalled increased volumes of work-in-hand. The upturn in jobs was the slowest in four months, while backlogs were accumulated to the quickest extent since May.

Holdings of manufactured goods in India decreased again at the end of the year as firms sought to fulfil orders from stocks. The pace of depletion was solid and the joint-fastest in three months.

In contrast, input inventories rose for the tenth successive month.

The key factor enabling companies to rebuild their input stocks was another increase in quantities of purchases. The upturn matched the solid pace noted in November, to be the joint-quickest in 11 months. At the same time, suppliers delivery times were broadly unchanged in December.

Goods producers reported that higher prices for materials, especially steel, resulted in another increase in overall cost burdens. That said, the rate of inflation eased to a 34-month low. The rise was marginal and much softer than seen on average over the survey history.

Easing cost inflationary pressures translated into unchanged selling prices, thereby ending a 16- month sequence of charge inflation. Efforts to boost sales were also reported as a reason preventing firms from hiking their fees.

Looking ahead, companies predicted that marketing initiatives, capacity expansions and forecasts of further improvements in demand will boost output in the coming year. That said, the level of confidence moderated from mid-quarter and was subdued in the context of historical survey data.

Commenting on the Indian Manufacturing PMI survey data, Pollyanna De Lima, Principal Economist at IHS Markit and author of the report, said:

"The Indian Manufacturing PMI indicated that the sector ended 2018 on a high, with growth stronger than seen at the start of the year. Output continued to rise strongly, in line with a robust upswing in sales. Companies benefited from rising international demand for Indian goods, as export orders expanded for the fourteenth straight month.

"Its particularly encouraging to see the quarterly PMI average climb to its highest mark since Q3 FY 2012, suggesting that the sector made a robust contribution to GDP.

"Spare capacity was evident, with vendors delivery times unchanged and input cost inflation softening. These signs of easing inflationary pressures indicate that we are likely to see the RBI adopt an accommodative monetary policy stance in early 2019.

"Meanwhile, job creation weakened, with companies perhaps cautious about making hiring decisions ahead of next years elections and a less upbeat optimism towards the outlook."

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