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HSBC manufacturing PMI remains unchanged in April at 51.3

02 May 2014 Evaluate

In not so encouraging news from India's factories, manufacturing production continued to remains sluggish in the country on account of moderate expansion of new businesses and lower output, which resulted from competitive pressures as well as power outages. However, any kind of contraction was prevented as slowdown in export orders was countered by firmer domestic demand during the month, according to HSBC survey.

The HSBC India Manufacturing Purchasing Managers' Index (PMI), a measure of factory production, which is based on data from monthly survey of  purchasing executives in over 500 manufacturing companies, stood at 51.3 in April, unchanged from the level in March. However, activity in the sector expanded for the sixth consecutive month in March. A PMI reading above 50 segregates growth from contraction.

The new orders sub-index, which measures overall demand, slipped in April to 52.5 from 52.7 as demand from abroad waned. However, the export orders reading held above the 50-mark, but suffered its biggest one-month fall in nearly two years. The growth of new export orders eased from March’s 35- month peak to the slowest since January.

However, matter of concern remained the built up in inventory, which was reflective of the poor demand environment. Both pre- and post-production stocks rose in April. While, the holdings of raw materials and semi-manufactured goods rose for the first time in five months, inventories of manufactured goods expanded the quickest since September 2012.

The survey showed that both input and output prices rose at their slowest pace in about a year, a development which might provide some respite to the policy makers after India’s wholesale inflation came at 3 months high in March. While, the rate of cost inflation softened to the slowest since last May, the rate of charge inflation was only marginal and the joint-weakest in the current eleven-month inflationary sequence.

Thus, although the latest data shows that inflationary pressure eased, but the survey highlights that this would not mean that RBI could take down its inflation guards. Moreover, the El Nino is expected to lead to below-normal precipitation, which could lift food inflation over the summer and in turn underpin RBI to maintain its hawkish trend. The RBI had increased the key policy repo rate three times since Raghuram Rajan took over as Governor in September.

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