Low exports hit manufacturing

Mumbai: The growth in India’s manufacturing activity moderated in May led by deterioration in external demand. The widely tracked Nikkei India Manufacturing Purchasing Managers Index (PMI) dropped to 51.6 in May from 52.5 in April.

A reading above 50 indicates expansion in activities while a reading below 50 suggests contraction in growth. It said that the international demand for Indian-manufactured goods deteriorated in May, as signalled by a decline in new export orders.

The contraction was only slight, but ended a three-month sequence of growth. Data collected in May pointed to softer expansions in both new orders and production.

Incoming new work rose at the weakest pace since February, with slowdowns evident in the consumer and intermediate goods categories.

Capital goods producers, meanwhile, recorded a contraction in order books. Output growth across the manufacturing sector as a whole was at a three-month low.

On the other hand, holdings of finished goods decreased in May as firms sought to fulfil orders from their existing stocks. The rate of depletion was sharp, and the most pronounced since August 2015.

“With inflation under control and manufacturing growth below par, we may see the RBI changing neutral monetary policy stance to accommodative in coming months in order to support the economy,” said Pollanna De Lima, economist, IHS Markit.

However, the business optimism according to the survey rose to a six month high with firms expecting new product launches and machinery acquisitions and marketing campaigns to support output growth in the year ahead.

“Firms dipped into their inventories to meet demand. The finished goods inventory fell to a 21-month low. We believe this may have been due to the impending GST implementation, as firms generally intend to maintain leaner inventories into the transition.  The rise in optimism level implies the softer May reading is transitory and firms’ outlook on (domestic) demand is positive,” said economists at Nomura.