India Manufacturing PMI at 54.9 in February; Business optimism improves to 4-month high

3 Mar 2022 , 08:06 AM

February PMI data showed another improvement in the health of the Indian manufacturing sector as firms responded to strong increases in new work intakes by lifting production, input buying and stocks of purchases. Employment fell at the softest pace for three months, while favourable demand conditions supported an improvement in sentiment which reached the strongest since last October.

The seasonally adjusted IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) was at 54.9 in February, up from 54.0 in January and signalling a stronger improvement in the health of the sector. Growth has now been seen in each of the latest eight months, with the headline figure remaining above its long-run average of 53.6.

On the price front, strengthening demand for raw materials led to another marked rate of input price inflation, albeit one that was the softest for six months. Selling prices rose modestly, however.

Sustained sales growth supported a further upturn in manufacturing sector output in February. The rise in production was the eighth in successive months and quickened from that seen in January.

New orders and output rose across each of the three broad areas of the manufacturing sector. For both measures, rates of expansion picked up at intermediate and capital goods firms but eased at consumer goods makers. Nevertheless, consumer goods were the best-performing sector in February, and for the third month in a row.

Commenting on the latest survey results, Shreeya Patel, Economist at IHS Markit, said: “Latest PMI data for India’s manufacturing sector revealed an improvement in operating conditions in February. Output and new orders expanded at stronger rates, while buying activity continued. At the same time, sustained increases in backlogs could lead to higher employment levels in the months ahead should capacity pressures continue.”

“There were, however, some key concerns that continued to threaten growth. Most prominently, costs pressures remained elevated as a result of shortages while delivery times lengthened once again. However, a key threat to manufacturers comes from only marginal increases in selling prices. Despite expenses rising sharply, firms passed on only part of this burden to clients, suggesting pressure on profit margins. “For now, India’s manufacturing sector has weathered the storm of the Omicron variant, undoubtedly supported by the relatively high inoculation rate. Moreover, demand conditions showed notable signs of resilience and price pressures somewhat receded,” Patel added.