PMI surge in December fastest in five years

India’s manufacturing sector expanded at the fastest pace in five years in December on the back of a higher inflow of new business and a rise in output growth, a survey has said. The Nikkei India Manufacturing Purchasing Managers’ Index (PMI) rose to 54.7 in December from 52.6 in November, recording a rise higher than the average 54.0 recorded since inception of the survey in March 2005.

This is the fifth consecutive month that the index stood above 50-point mark that separates expansion from contraction.

The positive PMI data came on a day when commercial vehicles sales data for December showed a strong rebound. Domestic sales of commercial vehicles of Tata Motors jumped 61.8 per cent last month to 40,447 units in December as against 24,998 units in the same month the previous year while the company’s commercial vehicles sales from exports grew 26 per cent to 6044 units. Ashok Leyland sold 15,950 units of medium and heavy commercial vehicles in December, a rise of 81.62 per cent from the same period last year. Eicher’s total sales of trucks and buses rose nearly 51 per cent to 5,955 units in December.

“Higher order book volumes and improved underlying demand conditions reportedly contributed to greater production. Notably, the rate of growth outstripped the trend seen since the start of the survey,” the survey said. At the broad market group level, growth was recorded across all three monitored categories — consumer, intermediate and investment.

“India’s goods-producing economy advanced on its recovery path, with operating conditions improving at the strongest pace since December 2012. Strong business performance was underpinned by fastest expansions in output and new orders since December 2012 and October 2016 respectively. Anecdotal evidence pointed to stronger market demand from home and international markets,” Aashna Dodhia, economist at IHS Markit and author of the report said.

Market experts tracking economic activity said there has been some improvement in economic activity. Pankaj Pandey, head of research at ICICI Securities, said that the jump in commercial vehicle sales “is a good sign for the economy.”

The report pointed that improved demand conditions resulted in Indian manufacturers increasing their staffing levels at the end of the year. The rate of job creation accelerated to the strongest since August 2012, the report said. Also, input buying rose the highest since August 2015 that led to “a modest increase in pre-production inventories for the first time since June.”

However, the manufacturing sector continued to face some strain on the pricing front owing to introduction of the Goods and Services Tax (GST) regime which led to the sharpest rise in input cost inflation since April.

“…The sector continues to face some turbulence as delayed customer payments contributed to greater volumes of outstanding work. On the price front, July’s GST continued to lead to greater raw material costs with input cost inflation accelerating to the sharpest since April,” Dodhia said.

As consumer spending recuperates, firms were restricted in their ability to pass on higher cost burdens to clients which further placed upward pressure on firms’ margins, the survey said. “Challenges remain as the economy adjusts to recent shocks but the overall upturn was robust compared to the trend observed for the survey history. This outlook was shared by the manufacturing community as sentiment picked up to the strongest in three months amid expected improvements in market conditions over the next 12 months,” Dodhia said.

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