Manufacturing

India's Manufacturing PMI (Purchasing Managers' Index) moderated in July with rates of expansion in output

India's Manufacturing PMI: Manufacturing sector of India moderated in July with expansion rates in output, marking the second consecutive month of easing growth. However, the pace of development remained robust, and the sector continued to outperform other major producers. The Manufacturing Purchasing Managers' Index (PMI) came in at 57.7. This reading indicates over two years of the index being above the 50-mark, signaling expansion in the manufacturing sector. Despite the fall, the Indian manufacturing sector maintained strong growth momentum at the start of the third quarter amid ongoing buoyant demand, the survey said.

“The sector has maintained its position as one of the star performers globally, bucking the trend of demand weakness seen in other parts of the world," noted Andrew Harker, S&P Global Market Intelligence economics director. “The Indian manufacturing sector showed little sign of losing growth momentum in July as production lines continued to motor on the back of strong new order growth,” he added.

India's Manufacturing PMI in July Came at 57.7

Higher orders pushed up employment, with S&P Global describing the pace of job creation in July as "solid" and "broadly in line" with what was seen in May and June. Further, export orders have risen the most since November, especially from the US, Bangladesh, and Nepal. Because new orders remained strong in July, and even as output growth moderated to a three-month low, it remained strong. In addition, foreign demand stoked exports at the fastest pace since November.

It may be noted that firms expected activity to stay elevated over the coming year, and the future output sub-index remained at 6.53, even as it was slightly lower than in June.

However, rising input prices posed a challenge, and output prices increased slightly, indicating inflation uncertainty.

After four months of easing, annual retail inflation rose to 4.81% in June, raising expectations for further increases in the coming months. This has led markets to anticipate that the Reserve Bank of India will maintain its key policy rate at a high level for an extended period.

As such, the RBI's Monetary Policy Committee is seen leaving the repo rate unchanged at 6.5 percent on August 10 for the third meeting in a row. "We expect the recent surge in perishable food prices to reverse in Q3 FY23-24 (October-December). Already, the rise in retail tomato prices is starting to slow. Still, given the evidence of price volatility transmission across vegetables, we think the RBI will sound cautious. This offers a further reason for the central bank to remain on hold," Rahul Bajoria, managing director and head of EM Asia (ex-China) Economics at Barclays, said in a note on August 1.