Good news at the factory gate as the Nikkei India Manufacturing Purchasing Managers’ Index (PMI) rose to 53.1 in June from 51.2 in May. This is the 11th successive month of expansion.

This index is based on the survey conducted among purchasing executives in over 400 companies. These companies are divided into 8 broad categories: Basic Metals, Chemicals & Plastics, Electrical & Optical, Food & Drink, Mechanical Engineering, Textiles & Clothing, Timber & Paper and Transport. Index over 50 shows expansion while below 50 mean contraction. The index is prepared by IHS Markit and released along with a detailed report.

Strong growth in new orders

Aashna Dodhia, Economist at IHS Markit and author of the report, said that India’s manufacturing economy closed the quarter on a solid footing against a backdrop of robust demand conditions, highlighted by the sharpest gains in output and new orders since last December. Meanwhile, orders from international markets rose at the strongest pace since February.

“The RBI recently raised interest rates for the first time in four years to contain inflation and stabilise the rupee. However, input cost inflation quickened to the strongest since July 2014 in June, suggesting that the central bank could remain under pressure to tighten monetary policy,” she said.

Manufacturing cos remian optimistic

The report mentioned that manufacturing companies across India’s manufacturing sector remained optimistic towards the 12-month outlook for output during June. “Optimism was linked to forecasts of further improvement in demand conditions. That said, the level of positive sentiment was the weakest since last October and below the series trend,” it mentioned.

Meanwhile, the latest index showed that manufacturing conditions improved in June at the strongest pace during the last seven months. It was due to sharpest gains in output and new orders in 2018 so far. Reflecting greater production requirements, firms were encouraged to engage in purchasing activity and raise their staffing levels.

On the price front, input cost inflation was the sharpest since July 2014, whilst output charges rose at a stronger pace. Business confidence eased to the weakest since last October.

Staffing levels hiked

There is positive development on job front too as the report said amid stronger demand conditions, firms raised their staffing levels in June. Although modest, job creation accelerated to the strongest in 2018 so far. Jobs growth was evident across consumption, intermediate and investment goods.

Reflecting the rise in producer inflation or wholesale price index (WPI), the report said that input costs faced by Indian manufacturing companies rose in June, thereby stretching the period of inflation to 33 months.

Moreover, the latest rise was the sharpest since July 2014. Panellists reported that steel and fuel were among the key items that increased in terms of price. Subsequently, firms raised their output charges at the fastest pace since February.

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