Factory output grows at five-month high on surge in orders: PMI

Manufacturing sector grew at its fastest pace in five months in March, marking the third straight month of expansion, on strong surge in domestic and export orders, a monthly survey showed on Monday.

The survey also showed that the inflationary pressure eased in the sector as input prices rose at a slower pace and the corresponding easing of output prices helped boost demand.

The Nikkei Markit India Manufacturing Purchasing Managers’ Index (PMI) — an indicator of manufacturing activity — increased to a five-month high of 52.5 in March, from 50.7 in February.

The factory output grew fast as order books expanded at the quickest pace since the demonetisation move, which had hit the manufacturing as well as services sector hard in a largely cash-dependent economy.

This is the third consecutive month of expansion in the manufacturing sector after the demonetisation-induced contraction during NovemberDecember period.

“PMI data for March reveal positive developments in the Indian manufacturing sector. Rates of expansion in factory orders and production accelerated again, encouraging some companies to scale up their input buying and take on additional workers,” said Pollyanna De Lima, economist at IHS Markit and author of the report.

On the prices front, the report said although both input costs and output charges rose further, inflation rates softened from February. During March, the rate of inflation slowed to the weakest in four months and was below the long-run survey average.

“Given that input costs rose at a softer pace, a whopping 96 per cent of goods producers kept their selling prices unchanged over the month,” Lima added. The Reserve Bank in its policy review meet on February 8 kept key interest rate unchanged at 6.25 per cent and said it is awaiting for more clarity on the inflation trend and impact of demonetisation on growth. The next meeting of the Monetary Policy Committee is scheduled this week for April 5-6, 2017.

Going ahead, the survey painted a bullish outlook as business confidence among manufacturers improved in March, with almost one-fifth of panellists expecting output levels at their units to be higher in 12 months’ time.