After declining for two months, the manufacturing sector’s output inched up to 51.6 in October from 51 in September, according to an HSBC Purchasing Manager Index (PMI) survey.

This reflects the improvement in operating conditions. “Manufacturing activity picked up modestly amid stronger output and new order flows, particularly from overseas clients,” Frederic Neumann, Co-Head of Asian Economic Research at HSBC, said.

However, firms continued to trim purchases and refrained from aggressive inventory accumulation, Neumann said. Price pressures declined with input prices easing further. Meanwhile, the improvement in growth allowed firms to raise margins by increasing output prices slightly.

“This trend could strengthen with growth, which is why the RBI will remain cautious about relaxing its grip at this juncture,” he said.

The PMI is a measure of factory production and based on data compiled from monthly replies from purchasing executives of around 500 manufacturing companies to a questionnaire. A score above 50 shows expansion, while anything below 50 indicates a decline.

Sentiment booster Though the improvement is modest, it is reassuring. With reforms picking up speed following the BJP’s successful show in recent State elections, sentiment and investment are expected to revive with vigour in the coming months. Besides, faster disinflation aided by a decline in oil prices is likely to lift real incomes and support growth down the line, through higher savings and consumption, the survey said.

It also said that the growth momentum will find support from agricultural output in the next quarter. The recovery of the monsoon following a weak start and its unusual extension should help farmers recover initial losses in output. Moreover, margin improvement, thanks to weaker commodity prices, will help firms de-leverage at a faster pace and allow them to reopen their wish list for capital expenditure.

Muted festival season Commenting on the latest index number, Rohini Malkani of Citi said in a note that with the festival season over and second-quarter earnings results under way, the refrain from managements across sectors is that the festive season was a bit more muted than expected.

“Today’s data, coupled with core sector trends, reinforces our view that there is growth — but a full-fledged recovery is still some time away,” she said.

Now, all eyes are on industrial output (IIP) data for September, due to be released next week. “Given the slower core output (1.9 per cent in September versus 5.8 per cent in August) and continued production issues in a Chennai based cell phone plant, we expect IIP to stay subdued at 1 per cent in September (as against 0.4 per cent in August),” she said.

The up-tick in the IIP is largely on account of robust automobile production, she added.

Related Topics
comment COMMENT NOW