The seasonally adjusted HSBC Purchasing Managers’ Index (PMI) – a headline index designed to measure the overall health of the India manufacturing sector – was down slightly in April to 57.2, from 57.8 in March. Although this slip indicates that operating conditions improved at a weaker rate during the latest survey period, the latest reading still signaled a considerable strengthening in the health of the industry.
The fall in the PMI reflected slower expansions in both output and new orders. Nevertheless, the indices tracking trends in these two variables remained at levels consistent with sharp rates of growth. Respondents stated that demand for Indian manufactures was supported by better global economic conditions, successful promotional activities and good business reputations. Although new export work continued to rise at a marked pace, data showed that the domestic market remained the primary driver of total new order growth.
Partly as a result of further new order gains, but also due to power cuts and input delivery delays, outstanding business at Indian manufacturers rose solidly in April. It was the fourth increase in five months and a new series record.
To ease capacity pressures and accommodate higher production requirements, manufacturers hired more staff and built up input stocks in April. Job creation was moderate and only slightly weaker than the 19-month high recorded in February. Meanwhile, another substantial rise in buying activity enabled firms to expand their raw material holdings at a marked and accelerated pace.
Greater demand for inputs from Indian manufacturers placed additional pressure on vendors in April. Consequently, lead times lengthened for the second month running. That said, the rate of deterioration was only moderate and little-changed since March. Reports suggested that power cuts and short supplies of certain commodities also contributed to delivery delays.
Manufacturers reported another rise in their average purchasing costs in April. Input price inflation was rapid and above the pre-crisis trend, despite easing from March’s series-record high. Panelists linked the latest increase to greater fuel and raw material prices, making particular reference to the elevated costs of metals, timber and cotton.
Prices charged for Indian manufactures rose at a marked pace during April, as firms responded to further growth in their cost burdens in an attempt to defend profit margins.
Commenting on the India Manufacturing PMI survey, Robert Prior-Wandesforde, senior Asian economist at HSBC, said: “India’s manufacturing PMI fell back for a second consecutive month in April but, at 57.2, remained consistent with double-digit year-on-year growth in the industrial sector. Both new orders and output indices were above 60 and employment showed modest gains. Of more interest, however, are the series relating to prices and capacity issues. Input prices showed a slightly smaller rise in April than March, although it was still the second-highest increase since the PMI began five years ago. Meanwhile, output prices registered their strongest increase for three months as backlogs of work jumped to an all-time high. The latter further supports the argument that demand is growing more strongly than supply, giving companies the confidence to push through price rises. In our view, India is in for a protracted period of rate hikes, the extent of which will surprise most forecasters.”