Manufacturing PMI : February 2014

Activity in India’s manufacturing sector expanded at its strongest pace in a year in February, providing some relief after a clutch of recent weak data showed little signs of a turnaround in the economy.
The HSBC Purchasing Managers' Index (PMI) for the manufacturing sector rose to 52.5 in February, its highest since March 2013. The index was at 51.4 in January. The 50-point mark separates growth from contraction in this index based on a survey of 500 large manufacturing units.
The encouraging signs in the manufacturing sector come after data on Friday showed the nation’s economy expanded at a tepid pace of 4.7% in the October-December period, a shade below the previous month’s 4.8% growth and recording a sub-5% expansion for the seventh successive quarter.
Improving export demand with a pickup in Western markets is aiding India’s manufacturing sector activity.
Nevertheless, February was the fourth straight month when activity in the sector expanded. Before that, it had shrunk for three consecutive months through October.
The silver lining in the latest data was a sharp increase in incoming new works – both domestic and foreign – suggesting that manufacturing could pick up pace going ahead. The sub-index for new orders rose to 54.9, highest in a year.
Since the PMI report is survey-based, and not backed by actual production or output, it only works as an indicator for the manufacturing sector.
Consumer goods was the best performing manufacturing sub-sector in February, leading the rises in both output and new orders.
This may suggest reviving demand. The number is quite contrary to the government-released index of industrial production, where the consumer durables segment has been a laggard. Output in the segment contracted for the ninth straight month in December, according to government data.
Reflective of higher production requirements, Indian manufacturers raised their buying activity further in February, according to the HSBC report.
A healthier order book also bodes well for exports, which rose 3.8% to $26.75 billion in January from a year ago, moderately ahead of the 3.5% rise recorded in December.
However, input cost inflation quickened to its highest in four months during February as per the PMI survey, suggesting inflation may not soften sharply despite a decline in food inflation.