HSBC India Manufacturing PMI expands at fastest pace in two years in December

02 Jan 2015 Evaluate

In a big sentiment boost, Indian manufacturing activity expanded at its fastest pace in two years in December as new orders, both from home and from abroad, flooded in and as factories kept price increases to a minimum. The HSBC India Purchasing Managers' Index (PMI), a headline index designed to measure the overall health of the manufacturing sector, climbed to two year high at 54.5 in December, up from 53.3 in the prior month. This is for fourteen straight month that the index has stayed above the watershed 50-mark that separates growth from contraction.

Latest data reflects the improving demand in December as new orders increased for the fourteenth consecutive month. Similarly, Indian manufacturing companies registered a further rise in new export business in December. Notably, new work from abroad expanded at the quickest pace since April 2011.

Moreover, the rate of expansion was marked overall and the fastest since the end of 2012. Although, business conditions improved at a faster pace in all three market groups during the month, the sharpest expansion was seen in consumer goods. A steep rise in new orders from the consumer sector more than offset a slowdown in new order growth from investment goods. However, rise in the latter is critical for a meaningful pick-up in economic growth.

Surprisingly, contrasting with continued growth of production and incoming new work, factories cut headcount at the steepest rate for nearly three years. An employment sub-index slipped to 49.6 from November's 50.2. Job losses were evident in two of the three surveyed sub-sectors, with the exception being intermediate goods.

On the inflation front, while higher prices of metals, chemicals and electronics placed upward pressure on input prices in December, the rate of cost inflation eased to the slowest in more than five-and-a-half years and was well below the long-run series average.

Thus, the stronger HSBC India Manufacturing PMI data reinforces Finance Minister Arun Jaitley's view that the economy will grow much better in 2015/16, while weaker inflation provides Reserve Bank of India (RBI) more space to cut interest rates as expected this year.

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