India’s manufacturing sector growth remained “steady” in April as a slowdown in export orders was countered by firmer domestic demand during the month, an HSBC survey today said.

The HSBC India Manufacturing Purchasing Managers’ Index (PMI), a measure of factory production, stood at 51.3 in April, unchanged from 51.3 in March, amid moderate expansion of incoming new business orders.

Activity in the sector expanded for the sixth consecutive month in March. A PMI reading above 50 indicates growth, while a lower reading means contraction.

“The momentum in the manufacturing sector held broadly steady, with domestic demand countering a slowdown in export orders,” HSBC Chief Economist for India and ASEAN Leif Eskesen said.

Eskesen further said: “A build-up in finished goods inventories could weigh on output growth in the coming months in the absence of a pick-up in demand.”

During April, the momentum in manufacturing held broadly steady, but the growth remains subdued.

“Output is held back by lack of power capacity and soft demand, with external demand easing recently and, anecdotally, due to a decline in order for investment goods.

“While we may get more traction on economic reform and implementation of investment projects post elections, it will still take a while before we see a notable and more sustained lift to activity,” HSBC said.

Though there were signs of easing inflation pressures in the manufacturing cluster, however, consumer price inflation remains elevated.

“Encouragingly, inflation pressures eased, but that does not mean that the RBI can take down its inflation guards,” Eskesen said.

Moreover, the El Nino is expected to lead to below-normal precipitation, which could lift food inflation over the summer and into the fall. The Reserve Bank will, therefore, not have much to cheer about and will need to maintain a hawkish stance, HSBC added.

The RBI had increased the key policy repo rate three times since Raghuram Rajan took over as Governor in September.

(This article was published on May 2, 2014)
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