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HSBC India Manufacturing PMI remains firm despite some moderation

01 Mar 2012 Evaluate

In contrast to official IIP data, HSBC Purchasing Managers' Index (PMI), prepared by Markit, has shown a firm trend in new orders for the manufacturing sector signaling a marked improvement in business conditions.  Though, as per the data, the seasonally adjusted HSBC Purchasing Managers’ Index slowed a bit in February to 56.6 from 57.5 in January, however Indian manufacturers reported a substantial increase in new business during February and improvement in overall business conditions. As per the seasonally adjusted HSBC Purchasing Managers' Index, the 50 mark separates growth from contraction and India has held above it for the past three years, showing continued strength. A rise in new export business too was recorded for the fourth successive month, although the increase weakened since January.

However, the data signaled a reduction of employment in the Indian manufacturing sector, adding pressure on operating capacity. The lack of suitable labour to fill vacant positions had led to the fall in staffing levels. Although purchasing activity strengthened in February, in line with a faster expansion of new orders, input prices continued to rise. As a result output price inflation accelerated to the fastest since March 2011.

The PMI data has came in contrast with the official data which points to a prolonged slowdown in the manufacturing sector as the government announced Index of Industrial Production (IIP) showed factory activity slowing down sharply in December, which impacted the Indian economic growth in the third quarter, coming at a slower-than-expected 6.1%, slowest in last three years.

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