India’s factory production index surged to a four-month high in May, with acceleration seen in both output as well as new-order growth, according to a survey based on responses from purchasing managers.

The HSBC Purchasing Managers’ Index (PMI) for manufacturing stood at 52.6 in May, up from 51.3 in April.

The PMI is a measure of factory production and is based on data compiled from monthly responses to questionnaires sent to purchasing executives in about 500 manufacturing companies.

A score above 50 shows expansion, while one below 50 indicates a decline. Data for the survey is compiled by Markit, a global provider of financial information services.

The survey found that manufacturing output increased for the 19{+t}{+h} month running in May, clocking the fastest rate of growth since January.

The sharpest rise was reported by consumer goods producers. Solid increases were also seen in capital and intermediate goods production. Underpinning higher output was improved demand from the domestic and foreign markets.

Economists’ view Markit’s economist Pollyanna De Lima said the data signals robust expansion of the Indian manufacturing economy in May. However, HSBC India’s economists, Pranjaly Bhandari, Prithviraj Srinavas and Stuti Saxena, in a note, said that a quick look at the HSBC PMI in May would suggest a sharp increase in output and order flows, but this up-tick comes on the back of a very weak April reading.

With the PMI data coming a day ahead of a policy review by the Reserve Bank of India, the economists are unanimous over one fact — the possibility of a rate cut. “Input cost inflation ticked higher and output prices were raised in May, but inflation rates are nonetheless weak in the context of historical data. This indicates that further rate cuts are still on the horizon,” said De Lima.

In their note, the HSBC economists said price pressures have started to move up for manufacturers, likely led by higher fuel costs and a weaker rupee. But “inflation momentum is still below trend, which should provide the RBI with just enough space for a 25 basis point rate cut to support growth,” the note said.

Recovery on the cards A note by Nomura said the PMI data suggests some rebound in manufacturing activity in the April-June quarter, following a soft patch in the January-March quarter.

The rising domestic order pipeline, lower backlogs, higher profit margin and higher order-to-inventory ratio look positive for a cyclical recovery.

“We expect improving corporate profit margins, higher disposable incomes, faster project clearances and greater public investment in infrastructure to support a recovery, with GDP growing at 8 per cent in FY16 from 7.3 per cent in FY15,” the note said.