Factory performance appears to have taken a small break as the Nikkei India Manufacturing Purchasing Managers’ Index (PMI) slipped a tad to 51.2 in May from 51.6 in April.

This index is based on the survey conducted among purchasing executives in over 400 companies. These companies are divided into eight broad categories: Basic Metals, Chemicals & Plastics, Electrical & Optical, Food & Drink, Mechanical Engineering, Textiles & Clothing, Timber & Paper and Transport. Index over 50 shows expansion while below 50 means contraction.

According to the report prepared by IHS Markit, latest survey data signalled a further, albeit weaker, improvement in Indian manufacturing conditions. This was reflected by weaker expansion in output and new orders and employment. Inflationary pressures intensified with both input and output prices rising at the fastest pace since February. Looking ahead, business optimism was weak by historical standards.

The report also mentioned that the latest upturn signalled a marginal improvement in the health of the manufacturing sector. However, the rate of increase slowed to a modest pace. Greater production in consumption and intermediate groups continued to outweigh a decline in investment goods. In line with the trend for output, new orders placed at Indian manufacturing companies rose in May. Participating managers suggested that enhanced marketing initiatives supported new client wins.

Export orders

As was the case with output, the latest upturn was modest. Meanwhile, amid reports of greater demand from international markets, Indian manufacturers reported the strongest gain in new export orders since February. Reflecting the trends observed in output and new orders, firms raised their staffing levels in May, albeit at a softer pace. Greater production requirements were cited as the key reason behind the latest rise in employment, te report associated with index said.

It also mentioned that purchasing activity declined for the first time in seven months in May, albeit only fractionally. Meanwhile pre-production items held by Indian manufacturing companies rose at a slower pace. Stocks of finished goods, on the other hand, declined further in May. Despite easing from April’s survey record, the rate of contraction was sharp.

Indian manufacturing companies faced higher input costs in May, thereby stretching the current sequence of inflation to 32 months. Panellists commented on higher prices for raw materials such as oil and steel. Reflecting higher cost burdens, firms raised their selling prices in May. Both input and output price inflation picked-up to the strongest since February. Businesses remained confident towards the 12- month outlook for output in May. An expected improvement in demand conditions boosted optimism, according to anecdotal evidence. That said, the respective index remained below the historical average.

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