Pleasant Surprise! Nikkei India manufacturing PMI clocks a six-month high in July

The growth in the seasonally adjusted Nikkei India Manufacturing Purchasing Managers’ Index was mainly on account of rise in the export orders, which were the most pronounced in five months

Bucking weakness seen across much of the rest of Asia, the seasonally adjusted Nikkei India Manufacturing Purchasing Managers’ Index (PMI)-a composite single-figure indicator of manufacturing performance came at a six-month high of 52.7 in July, from 51.3 in June. The 50-mark demarcates contraction from expansion.

The growth was mainly on account of rise in the export orders, which were the most pronounced in five months. Further while, outstanding orders that accumulated for second consecutive month added to positive trigger.

Notably, growth of both domestic and foreign clients was reported, with new business from abroad rising at the quick pace since February. Reflecting the rebound in new orders, Indian manufacturers raised their buying levels in July.

The rate of expansion was marked and faster than in June. Concurrently, stocks of purchases were accumulated again in July and at a pace that was the fastest in the year-to-date. Conversely, holdings of finished goods fell, with survey respondents indicating that orders were often fulfilled directly from stocks.

On the price front, a marginal rise in costs was registered, whereas average selling prices were unchanged over the month. Despite accelerating since June, the rate of inflation was only marginal and historically muted.

Worryingly, however, Indian manufacturers continued to cut workforce numbers in July. Nonetheless, the rate of job shedding was only marginal as around 96% of panelists reported no change in employment from the levels recorded in the prior month. Also, there was evidence of building pressures on the capacity of Indian manufacturers’ operations, as outstanding business was accumulated for the second month running and at the quickest pace since March.

The latest data although suggests that manufacturing upturn has gained trajectory, but the upcoming PMI data releases will suggest if manufacturing sector can sustain this momentum. Interestingly, firms holding back from rising output price, which could be done in order to pass the effect of raw material to consumer, is good news for Reserve Bank of India, which is expected to leave interest rates on hold.  RBI is scheduled to review monetary policy on August 4, wherein it is unlikely to tweak policy before October, particularly with retail inflation at an eight-month high after food prices spiked.