HSBC PMI slips to three month low of 52.9 in January

02 Feb 2015 Evaluate

Raising hopes of a rate cut by the Reserve Bank of India (RBI), Indian manufacturing activity retreated from two year high in January on slower pace of order flows from domestic and global markets. The HSBC India Purchasing Managers' Index (PMI), a headline index designed to measure the overall health of the manufacturing sector, slid to three month low at 52.9 in January, down from 54.5 in the prior month. Notably, despite falling, the index remained consistent with a solid improvement in business conditions in January. Moreover, the latest expansion was the fifteenth in as many months since the index has been higher above the watershed 50 mark, which denotes growth since November 2013.

The latest survey points that business conditions although have improved at a solid rate albeit more slowly than in the previous month. The overall improvement in the Indian manufacturing sector has been underlined by further output growth in January. Production has risen at a robust pace, extending the current sequence of expansion to 15 months.

Amid reports of improving demand, latest data indicated that new orders increased for the fifteenth successive month in January. However, having accelerated to the highest since April 2011 in the previous month, the growth of new export business moderated in January. A sub index covering new orders fell to 54.4 from 57.9 in December on weaker international demand since one of India’s main export destination, the euro zone is struggling to revive its economy and battling disinflation. Among the monitored sub-sectors, by far the sharpest rise occurred in consumer goods.

On the price front, lower prices paid for metals, chemicals, plastics and energy led to the weakest rise in input costs in the current 70-month period of inflation. As a result, output charges rose only fractionally during the month. Meanwhile, growth of output and new business continued to have little impact on employment in January, as workforce numbers rose only marginally during the month.

Lastly, in an encouraging development, the report indicated of RBI slashing interest rates by 75 basis points in the first half of 2015 on account of sluggish growth and falling inflation. The Reserve Bank of India, which last month announced a surprise rate cut of 25 basis points after maintaining a hawkish monetary stance for 20 months, is scheduled to undertake its sixth bi-monthly monetary policy review, 2014-15 on Tuesday, February 3.

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