Purchasing Managers Index rally over companies respond to high demand

The Nikkei India Manufacturing Purchasing Managers' Index (PMI) rose to 52.7 in May from 51.8 in April, showing the highest improvement in three months. Moreover, the current growth sequence was stretched to 22 months. Economic growth in India's manufacturing industry moved up as companies responded to strengthening demand conditions by lifting output, quantities of purchases and employment to greater extents.

Business sentiment also ticked higher. Price pressures remained relatively muted, with goods producers leaving selling prices unchanged on the back of a mild rise in overall cost burdens. Consumer goods led the upturn in May with rates of expansion in output, total sales, new export orders and employment surpassing those seen in the intermediate as well as capital goods categories. The latter returned to growth territory after a deterioration in business conditions in April.

Indian goods producers were confident of a rise in output in the year ahead, with sentiment improving from April. Expectations of pro-business public policies, marketing initiatives, projects in the pipeline and favourable economic conditions were among the reasons boosting optimism. "A revival in new order growth promoted a faster upturn in manufacturing production, as Indian firms sought to replenish inventories utilised in May to fulfil strengthening demand," said Pollyanna De Lima, Principal Economist at IHS Markit and author of the report.

"To assist with higher output needs, and benefit from relatively muted cost inflation, companies stepped up hiring and input purchasing. Goods producers were also able to charge competitive prices due to negligible increases in their cost burdens, meaning not only higher sales in the domestic market, but also greater overseas demand," she said. "The results show welcoming accelerations in expansion rates across a number of key metrics. When we look at the survey's over 14-year history, the sector is growing at a below-trend rate. Shortening the horizon to the last two years, May's increases in output, total order books and exports all outperformed," said De Lima. 

(With inputs from agencies.)