Nikkei India Manufacturing PMI moved up from 51.1 in February to an eight-month high of 52.4 in March
India's manufacturing upturn gathered momentum in March 2016, with stronger inflows of new work leading firms to scale up output. Along with improved domestic demand, producers also recorded an increase in new export business. These positive developments encouraged companies to buy more inputs, but workforce numbers were left broadly unchanged. On the price front, cost inflation accelerated, while charges were raised to the greatest extent since November 2014.Registering above the crucial 50.0 threshold for the third consecutive month in March, the seasonally adjusted Nikkei India Manufacturing Purchasing Managers' IndexTM (PMI)TM - a composite single figure indicator of manufacturing performance - was indicative of another improvement in business conditions across the sector. Moreover, the headline index was up from 51.1 in February to an eight-month high of 52.4.
Production growth accelerated to the fastest since August 2015, amid a stronger upturn in new business inflows. The latest expansion was widespread across the three monitored sub-sectors, with consumer goods posting the quickest rate of increase.
March data highlighted a third successive monthly rise in order books, which panellists associated with improved demand from both domestic and external clients. New business inflows increased at a solid pace and one that was the most pronounced since last July. Growth of new export orders was sustained, but the rate of expansion remained slight.
Buying levels increased further in March, which survey participants linked to stock-building initiatives. Although quicker than in February, the rate of growth was slight overall. As a consequence of rising purchasing activity, preproduction inventories expanded. The rate of accumulation was slight overall and in line with those seen throughout the current four-month sequence of growth.
On the other hand, holdings of finished goods declined in March, and to the greatest extent since last August. According to panellists, both existing and new orders were often fulfilled directly from stocks. Backlogs of work decreased in March, highlighting spare capacity in the sector. This prevented manufacturers from taking on additional workers and employment levels were broadly unchanged again.
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Meanwhile, input costs rose amid reports of the weaker rupee resulting in higher prices paid for imported raw materials. Tariffs were subsequently raised. Rates of cost and charge inflation were at three- and 16-month highs respectively.
Commenting on the Indian Manufacturing PMI survey data, Pollyanna De Lima, Economist at Markit and author of the report, said: "PMI data suggest we should expect another quarter of robust economic growth in the last quarter of the 2015-16 financial year. The Manufacturing PMI ticked higher in March, providing welcome reassurance that the sector has moved farther away from the flood-related contraction seen in December. Despite gathering momentum, growth of production and new orders still remained below trend rates however. On the export front, it was encouraging to see a sustained increase in new export orders, often attributed to the depreciation of the rupee.
"In addition to the underlying growth picture, a lot of focus remains on the trend in prices. On this front, March's survey suggests that inflationary pressures in manufacturing are on the upside, with cost burdens rising at the quickest pace in three months and output charge inflation reaching a 16-month high. Falls in commodity and oil prices were offset by the weaker rupee making imported raw materials costlier. This build-up in inflationary pressures may lead the Reserve Bank of India to hold off from cutting rates, especially as solid growth was seen."
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