Despite new orders, PMI mfg inches down in July

New Delhi: India’s manufacturing sector growth eased slightly in July, on softer increases in new orders and output, while cost pressures and demand strength led to the steepest increase in selling prices since October 2013, a monthly survey said on Thursday.

The seasonally adjusted HSBC India Manufacturing Purchasing Managers’ Index (PMI) moderated slightly from 58.3 in June to 58.1 in July. In PMI parlance, a print above 50 means expansion, while a score below 50 denotes contraction.

“India’s headline manufacturing PMI showed a marginal slowdown in the pace of expansion in July, but with most components remaining at robust levels, the small drop is no cause for concern,”said PranjulBhandari, Chief India Economist at HSBC.

“With demand conditions remaining favourable and new orders coming in, goods producers purchased additional inputs in July,” the survey highlighted.

Despite slowing since June, Indian manufacturers reported a substantial increase in new work intakes. There were also reports of strengthening demand from clients based in Asia, Europe, North America and the Middle East, Indian manufacturers experienced a robust increase in international sales during July.

The overall rate of expansion was marked and the second-strongest in over 13 years, the survey said. On the price front, buoyant demand also exerted pressure on prices. Input costs rose at one of the quickest rates in nearly two years, which contributed to the steepest increase in selling prices since October 2013. Indian manufacturers reported having paid more for coal, leather, packaging, paper, rubber and steel, as per the survey.

“The continuous increase in the output price index, driven by input and labour cost pressure, may signal further inflationary pressure in the economy,”Bhandari noted.

The Reserve Bank of India’s Monetary Policy Committee (MPC) kept the Repo rate unchanged at 6.5 per cent in the June meeting as sticky food inflation continues to keep retail inflation high.

The next monetary policy announcement is scheduled for August 8. Going ahead, the survey further noted that the overall level of positive sentiment towards the year-ahead outlook for production was broadly unchanged since June.