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Strong order flows holds promise of manufacturing expansion

Strong order flows holds promise of manufacturing expansion
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First Published: Tue, Mar 01 2011. 02 29 PM IST

Updated: Tue, Mar 01 2011. 02 29 PM IST
New Delhi: Despite rising input costs, the momentum in India’s business activity remains unabated. HSBC’s India Manufacturing PMI, which tracks the business activity in the manufacturing sector rose to 57.9 in February from 56.8 in January.
It’s a relief to market participants as worries about high crude prices and inflation decelerating economic expansion abate. The positive numbers boosted the sentiment on Dalal Street, which are already rejoicing from no-harm budget. Sensex at 1:06 PM is up 465.67 points or 2.5%.
Inflation has emerged as a biggest challenge for policy markers. Despite several steps by the central bank, inflation continues to hover 8% (WPI). This has led to widespread concerns that it will hamper corporate profitability and cripple economic growth. Perhaps, it also prompted the finance minister to hold back on excise duty cuts on several industries .
The latest PMI data from HSBC can take away some concerns off market participants as order flows continue to remain strong, despite pressure on input costs. Orders, especially from oversees market remained robust, holding considerable promise for the future economic activity. “Sequential output growth remains strong and well above the long term average (62.7 vs. 62.6 in January). Stronger orders, especially from abroad, also boosted the index reading (new orders 62.4 vs. 60.7 in January and export orders 58.7 vs. 55.7 in January),”says the release from HSBC.
Even though the order inflows remain robust what is worrying is the sharp up-tick in input costs. Input prices accelerated to a record-high (68.4 vs. 66.1 in January). Output prices also continued to climb, albeit a bit slower (56.3 vs. 56.7 in January) noted the release. So, while growth in business activity (in the form of new orders) is holding up well, what is worrying is the transformation of inflation into manufacturing activity. There wont be any quick fixes for spiralling prices as it needs to be addressed through expansion of capacities. As of now, there are no risks to order book.
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First Published: Tue, Mar 01 2011. 02 29 PM IST