At PMI of 54.5, manufacturing activity remains strong in February

The strong manufacturing sector expansion seen in India at the start of the year was maintained in February, with the growth rates for factory orders, exports and output dipping only marginally from January’s highs, a private survey said.

At 54.5 in February, the headline seasonally adjusted IHS Markit India Manufacturing PMI held close to January’s near-eight-year high of 55.3. This signalled robust improvement in operating conditions across sectors.

This is the 31st consecutive month that the manufacturing PMI has remained above the 50-point mark. A point above 50 means expansion, while one below that denotes contraction.

Manufacturing production increased at a similar pace to January’s, as firms reacted positively to new business gains and favourable market conditions. Growth was led by consumer goods makers, followed closely by intermediate goods producers.

New orders increase

Aggregate new orders increased sharply in February, with growth little changed from January’s, the survey showed. Firms that reported higher sales cited successful marketing campaigns, strengthening demand and supportive economic conditions.

February data showed that exports contributed to the expansion in total sales, with domestic firms noting the second-strongest improvement in international demand for goods since November 2018. There was a notable rise in new orders from abroad for the consumer goods sector and modest gains in the intermediate and capital goods sectors.

Although manufacturers expect further increases in demand to support output growth in the year ahead, the degree of optimism weakened from January and was below its long-run average.

Covid-19 threat

Commenting on the latest survey results, Pollyanna de Lima, Principal Economist at IHS Markit, said: “Factories in India continued to benefit from strong order flows in February, from both the domestic and international markets. The pick-up in demand meant that companies were able to further lift production and input buying at historically-elevated rates.

“However, alarm bells are ringing for Indian goods producers as the Covid-19 outbreak poses threats to exports and supply chains. Businesses became less confident about the year-ahead outlook for output, in turn restricting hiring activity. Meanwhile, price data continued to highlight a lack of inflationary pressure in the sector. Only modest increases in input costs and output charges were recorded in February, a trend that has been a key theme of the manufacturing PMI survey for over a year.”

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