Factory PMI slips, but still in expansion: Survey

Factory PMI slips, but still in expansion: Survey

Bangalore: India’s manufacturing sector expanded at a slower pace in December than in the previous month, weighed down by a weakening growth in factory output and new orders, a survey showed on Monday.

The HSBC Markit Purchasing Managers’ Index, based on a survey of 500 companies, slipped to 56.7 in December from 58.4 in November -- which was its strongest level since May 2010.

The December reading marked the 21st consecutive month that the key index of manufacturing in Asia’s third-largest economy has been above the reading of 50, which divides growth from contraction.

“Notwithstanding the deceleration from last month, these numbers are testament to the strong momentum in the manufacturing sector," said Leif Eskesen, chief economist for India and Asean at HSBC.

The survey showed the output sub-index slipped to 61.4 last month from a nine-month high of 63.7 in November. Though new orders grew for the 21st straight month, it was the weakest expansion in three-month.

“The strong momentum is pushing the sector to the limit, with capacity constraints tightening. This is showing up in more outstanding business, lengthening delivery times, and, of more concern, an acceleration in both input and output prices," said Eskesen.

The output price index continued to rise in December for the third straight month to reach its strongest since May, while input costs increased for the sixth successive month to its steepest since April.

India’s most widely watched inflation gauge, the wholesale price index, in November eased to a one-year low of 7.48%, compared with an annual rise of 8.58% in October.

But, the steep rise in food prices through December continue to concern policymakers.

India’s food inflation accelerated to a 10-week high in mid-December on rising prices of vegetables, while the fuel index also rose, adding to inflationary worries.

The Reserve Bank of India (RBI), which left rates unchanged in December after six increases since last March, has said it expects WPI inflation to ease to 5.5% by end-March, but also said inflationary risks were to the upside.

“The RBI’s hawkish tones in their latest statement are well founded and tightening will resume in early 2011," said Eskesen.