Manufacturing activity showed its strongest growth in a year in February driven largely by growth in new business orders and an improved macroeconomic situation, according to a survey released on Monday, indicating that the worst may be over for Indian industry.
The HSBC India Manufacturing Purchasing Managers’ Index (PMI), a measure of factory production, stood at 52.5 in February, up from 51.4 in the previous month, signalling a solid and stronger improvement in business conditions across the country’s manufacturing sector.
The survey’s results should provide some relief after data on Friday showed GDP grew by a slower-than-expected 4.7 per cent annually in the three months through December, dragged lower by a contraction in manufacturing and mining.
Activity in the sector expanded for the fourth consecutive month in February.
A PMI reading above 50 indicates growth while a lower reading means contraction.
“Manufacturing activity picked up further in February. New order flows have firmed, with the improvement in external demand and the reduction in macroeconomic uncertainty since last summer,” HSBC chief economist for India & Asean, Leif Eskesen, said.
Overall, new orders for factory goods, which rose to a one-year high of 54.9 contributed to the surge. Export orders climbed to their highest in eight months. HSBC said production growth accelerated on a stronger rise in incoming new work. The pace of output expansion was solid and the quickest in one year. Higher demand from both domestic and export clients boosted order flows in February.
Eskesen, however, noted that the recovery in manufacturing is still likely to prove “protracted” given the lingering structural constraints. On inflation, the report said input costs rose during February and subsequently, average tariffs were raised further last month.
“Underlying inflation pressures remain potent, which was evident from the jump in the input price component of the PMI survey. This will keep RBI hawkish and likely compel it to raise rates a bit further this year,” Eskesen said.