India’s June manufacturing PMI fell to 9 month low

The Indian manufacturing sector registered its nine month lowest growth rate in June, indicating the tight monetary stance taken by the central bank to curb inflation, and raising input cost holding the growth pace of manufacturing sector.

The headline HSBC Markit Purchasing Managers’ Index (PMI) based on a survey of around the 500 companies fell to nine month low level to 55.3 in June from 57.5 in May. This fall is steepest fall from September 2010. However, as per the HSBC Markit PMI, new business received by manufacturers in India increased substantially during June, extending the sequence of sustained growth to 27 months. The new export orders also rose firmly however, the rate of growth was slowest since November 2008.

The Indian manufacturing sector output was also affected by the power cut and shortage of labour, the report said labour shortages and power cuts impacted negatively on production. Subsequently, backlogs of work increased for a fifteenth successive month.

The survey also states purchasing activities increased in the sector, however, many companies in manufacturing sector commented that the increased cost of raw materials limiting their purchasing power. The HSBC report said, “Suppliers’ delivery times continued to lengthen, with anecdotal evidence suggesting that vendor performance was negatively impacted by higher levels of input buying, alongside shortages of materials, labour and power”.

The input prices rise due to increase in prices of raw material, and because of the higher input prices the output prices also increased in the month of June, however, according to the survey the latest increase slowed to the weakest in seven months as pricing power was restricted by strong competition for new business.

Leif Eskesen, Chief Economist for India & ASEAN at HSBC said, “The momentum in the manufacturing sector slowed in June as sequential growth in output and new orders decelerated further. Even with growth easing, tight capacity is still showing up in rising backlogs of work and a lengthening in supplier delivery times.”

“On the inflation front, input costs accelerated, while output prices rose less fast. These numbers confirm that tight capacity and monetary tightening is constraining growth. However, inflation pressures are still firmly in place, calling for further policy rate hikes to anchor inflation expectations”, he added.