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Business News/ Economy / India's manufacturing activity hits five-month high in February on robust demand
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India's manufacturing activity hits five-month high in February on robust demand

Manufacturing PMI rose to 56.9 in February from 56.5 in January driven by a sharp uptick in orders and lower input costs

The February PMI reading is slightly higher than 56.7 estimated by HSBC in its Purchasing Managers' Index for the Indian manufacturing sector. (image: Pixabay)Premium
The February PMI reading is slightly higher than 56.7 estimated by HSBC in its Purchasing Managers' Index for the Indian manufacturing sector. (image: Pixabay)

New Delhi: India’s manufacturing activity hit a five-month high in February, driven by a sharp uptick in orders and lower input costs, a private survey said on Friday.

According to the HSBC India Manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, India Manufacturing Purchasing Managers' Index (PMI) rose to 56.9 in February from 56.5 in January, recovering from an 18-month low of 54.9 in December.

A reading above 50 separates expansion from contraction.

The February reading is slightly higher than 56.7 estimated by HSBC in its Purchasing Managers' Index for the Indian manufacturing sector.

While production rose at the fastest pace in five months during February, fuelled by the quickest increase in sales since last September, new export orders expanded at the strongest rate in 21 months during the month, the survey said.

Production levels were raised following a steep increase in inflows of new orders amid buoyant demand conditions. The upturn in manufacturing output was led by the capital goods category, it added.

Interestingly, the second advance estimate released by the statistics ministry on Thursday showed that India’s economy may expand 7.6% in FY24 amid strong investment growth in plant and machinery, robust manufacturing growth, and a slight improvement in trade, even as consumption and government spending seeing a slower pace than previously estimated. In January, the ministry had forecast a 7.3% growth in the fiscal.

"The HSBC final India Manufacturing PMI indicates that production growth continued to be strong, supported by both domestic and external demand. Manufacturing firms’ margins improved as input price inflation slipped to the lowest since July 2020," said Ines Lam, Economist at HSBC.

"Buoyed by robust demand and improving profit margins, manufacturers have an optimistic outlook about future business conditions," Lam added.

The latest PMI numbers, based on a survey of 400 manufacturers, follow data that showed that the Indian economy grew at an impressive 8.4% in the December quarter on the back of higher government spending, strong investment growth in plant and machinery, robust manufacturing growth and a slight improvement in trade.

"Notably, new export orders rose at the fastest rate in nearly two years, with anecdotal evidence highlighting Australia, Bangladesh, Brazil, Canada, mainland China, Europe, Indonesia, the US and UAE as sources of demand growth," the survey said.

"Similarly, factory orders expanded at the quickest pace since September and one that was above the long-run series average. Firms indicated that marketing efforts continued to bear fruit, helped by a positive demand environment," it added.

While industrial output growth rose to 3.8% in December after falling to an eight-month low of 2.4% in November, consumer price index (CPI)-based retail inflation fell to a three-month low of 5.1% in January, according to the latest official data.

The latest retail inflation number is near the upper limit of the Reserve Bank of India's target range of 2-6%. However, the central bank is expected to stand pat on policy rates, a tool to control inflation, during the final quarter of the current fiscal year.

The Centre's expectations for India's economic growth in the fiscal year 2023-24 at 7.6% exceeds the central bank’s projection of 7%, with India remaining the fastest-growing major economy in the world, aided by a rise in manufacturing.

"Finally, February survey data indicated sustained optimism among manufacturers regarding the year-ahead outlook for production," the survey said.

"The overall level of confidence was the second highest since December 2022," it added.

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ABOUT THE AUTHOR
Rhik Kundu
Rhik writes about the Indian economy and its crucial indicators. He is constantly navigating corporates, decoding policies, and dabbling with everything in between.
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Published: 01 Mar 2024, 11:46 AM IST
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