Led by the consumer goods segment, India’s factory output registered its fastest growth and a 21-month high in November, but inflationary pressure has also intensified, said an HSBC survey, on Monday.
The HSBC survey, which came just a day before the monetary policy review by the Reserve Bank of India, showed that the purchasing managers’ index (PMI) for November stood at 53.3, up from 51.6 in October. This has weakened the case for a rate cut by the RBI, feel experts.
“Manufacturing activity accelerated further in November, led by higher output and new orders. Domestic orders saw the biggest increase, even as new export orders continued to be strong. The sharp rise in input prices was surprising, but future prints may be lower as falling commodity prices eventually lead to softer intermediate goods prices,” said Pranjul Bhandari, Chief India Economist at HSBC.
The pick-up in output prices could partly be signalling some revival in pricing power among businesses, the survey said.
“Higher output and an up-tick in final prices should convince the RBI to hold rates in the upcoming meeting,” Bhandari said.
The PMI is a measure of factory production and based on responses of purchasing executives of around 500 manufacturing companies.
A score above 50 shows expansion, and anything less indicates a contraction.
Demand rising The survey said that November data reinforced reports of stronger-than-expected demand, as new order growth accelerated to the quickest in 21 months.
Consumer goods were again the best performing of the surveyed sub-sectors. Similarly, foreign orders received by Indian goods producers continued to rise strongly in November, it said. Commenting on the survey, Rohini Malkani of Citi said that while the latest prints in the PMI price indices are surprising, “we maintain our view that the broad-based decline in inflation has opened the space for monetary policy to augment ongoing policy measures to revive growth”.
She added that “given the OPEC decision last week and the Indian rupee’s outperformance, one cannot rule out an outside chance of a surprise in the RBI policy tomorrow (Tuesday).”
Sonal Varma and Aman Mohunta of Nomura, in a note, said that the rise in the price indices indicates that there could be some up-tick in WPI inflation in November.
However, given the recent slide of commodity prices, “we expect input costs to fall next month, while output prices may remain largely unchanged as demand improves, leading to better corporate profit margins”, the note added.