India PMI: Rise in new export orders is welcome, but sustenance key
Considering that a full-fledged US-China trade war has been one of the key concerns for Indian firms, the rise in new export orders is welcome
Business activity in India’s manufacturing sector increased in November, courtesy a surge in new orders. As a result, the Nikkei India Manufacturing Purchasing Managers’ Index (PMI) rose to an 11-month high of 54 in November from 53.1 in October. A reading above 50 indicates expansion, while one below that threshold points towards a contraction.
As per the survey, new orders expanded at the second-fastest rate in over two years, only slower than that seen in December 2017. Further, the expansion in total new orders was supported by greater sales to international markets. Growth of new export work quickened to the fastest in just under four years, as producers reportedly received bulk orders from clients in key export destinations, said the survey report.
Considering that a full-fledged trade war has been one of the key concerns for Indian companies, the rise in new export orders is welcome. However, the key question is whether this will sustain, given that the US and China have agreed to defer additional tariffs only temporarily.
As for input prices, they moderated in November and increased sales helped companies raise output prices. This is likely to provide some respite to the operating margins of manufacturers, who have been reeling under cost pressures.
Meanwhile, business sentiment among Indian manufacturers improved from October’s 20-month low, with companies forecasting better market conditions in the coming 12 months.
“The relatively weak demand environment seen earlier in the year showed signs of abating, with clients unfazed by another round of increases in output prices and placing more orders regardless. Correspondingly, goods producers rebuilt raw material stocks in order to guard against possible delivery delays and fulfil contracts. Manufacturers further drew down their finished goods stocks to meet demand. This, coupled with improved business sentiment, should ensure that production continues to rise at a robust clip as we head towards 2019,” said Pollyanna De Lima, principal economist at IHS Markit and author of the report.
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