Indicating a recovery in the industrial sector, the Purchasing Managers’ Index (PMI) for manufacturing sector expanded in May and rose to 52.7 as against 51.8 in April. This shows strongest improvement in the health of the manufacturing sector during last three months.

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This index is prepared on the basis of a survey which is conducted among purchasing executives in over 400 companies. These companies are divided into 8 broad categories: basic metals, chemicals and plastics, electrical and optical, food and drink, mechanical engineering, textiles clothing, timber and paper, and transport.

An index over 50 shows expansion, while an index below 50 means contraction.

Slowdown worries

The index is prepared by IHS Markit and released along with a detailed report. This index is widely quoted to explain the latest industrial situation and is known as the Nikkei India Manufacturing PMI.

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The turnaround has happened when there is an apprehension of economic slowdown with annual growth (for fiscal year 2018-19) and the quarterly growth (January-March, 2019) numbers were at a five year low.

These numbers are also indicate that the RBI’s Monetary Policy Committee (MPC) might cut the policy rate further when it will announce its resolution on June 6.

Revival in growth

Commenting on the latest movement in the index, Pollyanna De Lima, Principal Economist at IHS Markit, said that a revival in new order growth promoted a faster upturn in manufacturing production, as Indian firms sought to replenish inventories utilised in May to fulfil strengthening demand.

To assist with higher output needs and benefit from relatively muted cost inflation, companies stepped up hiring and input purchasing.

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Goods producers were also able to charge competitive prices due to negligible increases in their cost burdens, meaning not only higher sales in the domestic market, but also greater overseas demand.

“The results show welcoming accelerations in expansion rates across a number of key metrics. When we look at the survey’s over 14-year history, the sector is growing at a below-trend rate. Shortening the horizon to the last two years, May’s increases in output, total order books and exports all outperformed,” she said.

According to the report, consumer goods led the upturn in May, with the rates of expansion in output, total sales, new export orders and employment, surpassing those seen in the intermediate and capital goods categories. The latter returned to growth territory, following a deterioration in business conditions in April.

Sales growth

Aggregate manufacturing output increased at the quickest pace in three months, with survey participants linking growth to new client wins, robust sales and improved technology. Strengthening demand and successful marketing reportedly underpinned sales growth in May.

The latest rise in factory orders was the nineteenth in as many months and quicker than that seen in April.

External sales continued to contribute to total order flows, with exports expanding at the joint-quickest pace in six months.

Indian manufacturers were confident of a rise in output in the year ahead, with sentiment improving from April.

Expectations of pro-business public policies, marketing initiatives, projects in the pipeline and favourable economic conditions were among the reasons boosting optimism.