India Nikkei Manufacturing PMI falls to 52.3; Rupee demonetisation weighs on manufacturing performance

India Infoline News Service | Mumbai | December 01, 2016 16:46 IST

The withdrawal of high-value banknotes in India reportedly hampered manufacturing growth in November, with companies signalling softer increases in order books, buying levels and output.

The November data highlighted an eleventh consecutive monthly improvement in manufacturing conditions across India, with the headline seasonally adjusted Nikkei India Manufacturing Purchasing Managers’ Index (PMI) registering 52.3. However, down from October’s 22-month high of 54.4, the latest reading pointed to a modest upturn overall.

The withdrawal of high-value banknotes in India reportedly hampered manufacturing growth in November, with companies signalling softer increases in order books, buying levels and output. Concurrently, inflation rates for both output charges and purchase costs eased since October.

One factor contributing to the downward movement in the PMI was a softer expansion in new business inflows. Order books rose at a moderate pace that was the slowest since July.

Panelists reported higher demand from domestic as well as external clients, but indicated that growth was hampered by the money crisis. The upturn in new export orders also lost some momentum in November. Manufacturing production growth slowed amid reports of cash shortages. Softer increases in output were noted in each of the three monitored sectors, with consumer goods producers recording a sharp slowdown in growth.

Although firms continued to step up their quantities of purchases, the rate of expansion eased from October’s 14-month high. Money issues was the main reason listed by respondents for the softer growth in input buying. By sector, the weakest performer on this front was consumer goods.

As has been observed for around two-and-a-half years, manufacturing employment was broadly unchanged during November. Meanwhile, outstanding business increased for the sixth month running. The rate of backlog depletion was, however, modest and the weakest since June.

There were divergences with regards to stock levels as falling inventories of finished goods contrasted with higher holdings of raw materials and semi-finished items. The drop in post production stocks was mainly linked by respondents to a slower expansion of output, while the accumulation in stocks of purchases was associated with buying activity growth. Higher prices paid for a range of raw materials resulted in a further overall increase in input costs.

Although solid, the rate of inflation eased since October. November data indicated that less than 3% of firms passed rising cost burdens through to their clients, with 96% of companies reporting unchanged selling prices. Subsequently, the rate of charge inflation softened and was marginal.

Commenting on the Indian Manufacturing PMI survey data, Pollyanna De Lima, Economist at IHS Markit and author of the report, said: “PMI data for November showed that the sudden withdrawal of high-value banknotes in India caused problems for manufacturers, as cash shortages hampered growth of new work, buying activity and production. “However, whereas some may have anticipated an outright downturn, the sector held its ground and remained in expansion mode. Furthermore, although many surveyed companies commented that further
 

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