HSBC manufacturing PMI unchanged in April

India Infoline News Service | Mumbai |

The momentum in the manufacturing sector held broadly steady, with domestic demand countering a slowdown in export orders

According to HSBC's PMI survey, the momentum in the manufacturing sector held broadly steady in April, with a slowdown in export orders countered by firmer domestic demand. However, a build-up in finished goods inventories could weigh on output growth in coming months in the absence of a pickup in total demand.
Encouragingly, inflation pressures eased, but that does not mean that the RBI can take down its inflation guards.
HSBC's India manufacturing PMI (51.3 vs. 51.3 in March) held steady. However, output growth (51.7 vs. 52.2 in March) slowed and new orders (52.5 vs. 52.7 in March) moderated slightly, with firmer domestic demand countering a slowdown in new export orders (53.0 vs. 56.8 in March).
Despite the broadly steady output and order growth, the quantity of purchases (53.0 vs. 51.7 in March), stocks of purchases (52.4 vs. 49.9 in March) and stocks of finished goods (52.7 vs. 51.4 in March) rose at a faster pace. This could weigh on output growth in the coming months if demand does not pick up pace.
Backlogs of work (51.2 vs. 53.0 in March) is still rising, but at a slower pace, and supplier delivery timeliness (51.1 vs. 50.5 in March) improved. Meanwhile, employment was broadly unchanged (50.2 vs. 50.2 in March).
Meanwhile, inflation cooled notably for input prices (54.6vs. 57.2 in March) and was marginally lower for output prices (50.9 vs. 51.0 in March).
The momentum in manufacturing held broadly steady, but growth remains subdued. Output is held back by lack of power capacity and soft demand, with external demand easing recently and, anecdotally, due to a decline in orders for investment goods.
Near term, there is little scope for manufacturing activity to strengthen. The pickup in re-stocking could weigh on output growth in coming months in the absence of a firming of total demand. Moreover, high inflation, supply-side bottlenecks, elevated corporate leverage, and the deterioration in bank asset quality remain key constraints on growth.
While we may get more traction on economic reform and implementation of investment projects post elections, it will still take a while before we see a notable and more sustained lift to activity. Encouraging there were signs of easing inflation pressures in the manufacturing cluster. However, consumer price inflation remains elevated as inflation expectations are proving very sticky and capacity remains tight in the supply-constrained economy.
Moreover, the El Nino is expected to lead to below-normal precipitation, which could lift food inflation over the summer and into the fall. The RBI will, therefore, not have much to cheer about and will need to maintain a hawkish stance.
The momentum in the manufacturing sector held broadly steady, with domestic demand countering a slowdown in export orders. Encouragingly, inflation pressures eased, but that does not mean that the RBI can lower its inflation guards.
 

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