India PMI Rises to 53.1

India’s manufacturing sector activity in June grew at the strongest pace this year, supported by rise in domestic and export orders, says a monthly survey.

The Nikkei India Manufacturing Purchasing Managers Index rose from 51.2 in May to 53.1 in June, registering the fastest improvement since December 2017, PTI reported.

This is the 11th consecutive month that the manufacturing PMI remained above the 50-point mark. In PMI parlance, a print above 50 means expansion, while a score below that denotes contraction. “India’s manufacturing economy closed the second 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,” said Aashna Dodhia, economist at IHS Markit and author of the report.

Reflecting greater production requirements, manufacturing firms were encouraged to engage in purchasing activity and raise their staffing levels. 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.

Following a fractional decline in May, firms raised their purchasing activity at the end of the quarter. Although modest, the pace of expansion quickened to the fastest since January. Panelists commented on improvements in market demand. As a result, post-production inventories held by manufacturing companies rose further in June, but only fractionally.

Despite strengthening demand conditions, business sentiment was at the weakest level seen since last October. Optimistic projections for output reflected expectations that demand conditions will improve over the next 12 months, according to anecdotal evidence. “On the jobs front, the latest survey data pointed to a healthy labor market, with job creation accelerating to the sharpest since December 2017,” Dodhia said.

“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,” Dodhia added.

In June the Reserve Bank of India had upped its retail inflation projection by 0.30% and kept the policy stance in the neutral zone, even as it hiked the key rate by 0.25% to 6.25%.

Meanwhile, business confidence eased to the weakest since last October, and the dip in optimism partly reflected concerns of a potential market slowdown in the year ahead.

“Indeed, some of the key challenges to the 12-month outlook include tighter domestic monetary policy and persistently high inflation,” Dodhia said.