Factory activity grows at fastest pace in 5 years

Mumbai: The Indian manufacturing sector ended the year on a strong note, with operating conditions in December improving at the strongest rate in five years, a monthly survey showed on Tuesday.

The overall upturn was supported by the sharpest increase in output and orders since December 2012 and October 2016 respectively.

In response to greater inflows of new business, job creation accelerated to the strongest level since August 2012.

The Nikkei India manufacturing purchasing managers index (PMI) rose to 54.7 in December from 52.6 in November.

Interestingly, the PMI reading is slightly higher than the average reading of 54 recorded since the inception of the survey in March 2005.

Responding to a pick up in growth in the domestic manufacturing sector, the rupee extended its rally for the fourth consecutive day to a 29-month high.

The local currency closed the session at 63.48 a dollar, a level last seen in July 2015.

The equity markets also staged a mild recovery from its days low and ended the day with marginal gains.

“Challenges remain as the economy adjusts to recent shocks, but the overall upturn was robust compared to the trend observed for the survey history. This outlook was shared by the manufacturing community as sentiment picked-up to the strongest in three months amid expected improvements in market conditions over the next 12 months,” said Aashna Dodhia, economist at IHS Markit and author of the survey report.

The survey noted that the new business orders were driven primarily by greater demand from home and international markets. The new export orders rose at the quickest pace since June 2017.

Meanwhile, the introduction of GST continued to exert upward pressure on manufacturers cost burdens in December. Reflecting greater cost pressures, firms raised their average selling prices at the fastest pace since February.

Although the rate of inflation rose to a 10-month high, the survey said the pace of growth was modest and weaker than the long-run series average.

However, the monthly survey also highlighted the inability of firms to pass on the entire cost burdens to their clients putting pressure on their profit margins.