Home/ Markets / Mark To Market/  Manufacturing PMI up but watch out for a spanner in the works

Business activity in India’s manufacturing sector saw a sharp upturn in December. The seasonally adjusted S&P Global India Manufacturing Purchasing Managers’ Index (PMI) rose to 57.8, up from 55.7 in November, aided by robust inflows of new business.

The health of the sector saw robust improvement, the best since October 2020, said the PMI survey report. So, in a bid to meet increased demand, companies also stepped up production. A reading of above 50 indicates expansion and below points to a contraction. In December, PMI reading was in the expansion zone for the 18th consecutive month. Also, the PMI average for the third quarter of the fiscal year, at 56.3, was the highest recorded in the last one year.

On the rise
View Full Image
On the rise

You might also like 

Keep an eye on these economic indicators in 2023

IBC plot twist may let defaulters keep the reins

Billimoria: from just 1 client to 550 crore assets

Among the other positives, input cost inflation pressure was muted in December, with the overall rate of inflation little changed since November. Price reductions for some raw materials partly offset increases elsewhere, showed the survey. At the same time, selling prices rose at a faster pace. Moreover, for the first time in close to two-and-a-half years, the rate of inflation for selling prices outpaced input costs, according to the report. This bodes well for the profitability outlook of manufacturers.

These factors kept the business confidence of manufacturing firms in good stead. The Future Output Index, a gauge of optimism among goods producers, stood at 67.1 in December, similar to November.

But there’s a catch. Over the last few months, PMI readings (a private survey) and the Index of Industrial Production data, which is published by Central Statistical Organisation, have been increasingly divergent, said Madhavi Arora, lead economist at Emkay Global Financial Services Ltd. This means sustaining the business momentum as indicated by the PMI survey will be challenging, especially given the global macro environment.

With the fears of a recession looming, the outlook for global economic growth is deteriorating. “In 2023, global growth is expected to be softer as the impact of cumulative rate hikes by central banks becomes more visible on demand," said Gaura Sen Gupta, economist, IDFC First Bank. This means that export growth is likely to weaken in 2023. “Manufacturing production tends to be closely linked with export growth and hence, we could see softer growth in manufacturing output next year," she cautioned.

According to the PMI survey, international demand for Indian goods rose in December, however, it was to a lesser extent than in November. Overall, new orders from abroad rose at the slowest pace in five months as several companies struggled to secure new work from key export markets, added the PMI report.

This risk is not unique to India. In recent months, most Asian economies are seeing a similar trend in exports. Even so, it points to a grimmer overall manufacturing growth outlook for India. Two, global central banks are expected to maintain a hawkish monetary policy stance, at least for now. Although the quantum of interest rate hikes may reduce, some more rate increases could be in the offing.

“The organic growth aided by domestic demand is keeping India in a relatively better position than many Asian peers," said Rahul Bajoria, managing director and head, emerging Asia (Ex-China) economics, Barclays. But with global liquidity conditions tightening, India is also likely to be impacted, but with a lag, he added. Meanwhile, the improving pricing power of goods producers could translate into further rise in the selling price. At the macro level, this means that India’s core retail inflation would remain sticky and elevated despite easing input costs, said economists.

Elsewhere in Mint

In Opinion, Manu Joseph explains the difficulty of saying something good about India. Pramit Bhattacharya tells how to save the Census from disruptions. Jyotsna Jha says it's time to consider a wealth tax. Long Story narrates entry of Indian farming in the carbon credits market.

Know your inner investor Do you have the nerves of steel or do you get insomniac over your investments? Let’s define your investment approach.
Take the test
Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Updated: 03 Jan 2023, 11:09 AM IST
Recommended For You

Get the best recommendations on Stocks, Mutual Funds and more based on your Risk profile!

Let’s get started
Get alerts on WhatsApp
Set Preferences My Reads Watchlist Feedback Redeem a Gift Card Logout