Manufacturing rises to 6 month high in December

New Delhi: Manufacturing activity climbed to a six-month high in December as new orders rose, reinforcing signs of industrial revival.

The HSBC Markit India Manufacturing Purchasing Managers' Index rose to 54.2 from 51.0 in November, the highest level since June and the sharpest monthly rise since April 2009, according to data released on Monday. A reading below 50 indicates contraction. It was 52 in October and 50.4 in September.

The rebound in manufacturing follows core sector numbers last week that hinted at a pick-up in industrial growth. The index for eight core sector industries, which have a combined weight of 38% in the index of industrial production ( IIP), expanded 6.5% in November.

"Activity in the manufacturing sector rebounded in December, led by higher demand from both domestic and foreign clients, suggesting that the momentum in the sector is not quite as weak as official and more dated IP (industrial production) data would suggest," said Leif Eskesen, economist at HSBC.

A 5.1% contraction in industrial growth in October had triggered a slew of downgrades in GDP growth estimates, with some even forecasting below-7% growth.

The positive PMI data aided the benchmark stock index in its 0.4% rise but failed to enthuse independent economists.

"The overall manufacturing picture looks gloomy and one can't expect any major improvements in the coming three months," Institute of Economic Growth professor Pradeep Agrawal said, adding that only after state elections can one expect recovery-boosting policy reforms.

Biswajit Dhar, director-general of RIS, a think-tank, said, "It is definitely good news as far as signals to market sentiments are concerned, so one can't dismiss it, but don't expect much effect on overall growth (GDP) performance."

The PMI is calculated using data from a questionnaire-based survey of purchasing executives in over 500 manufacturing companies.

The survey is not always an accurate gauge of manufacturing because of the presence of a large unorganised sector. Greater input purchases by companies would suggest a rise in production.

The managers surveyed said higher purchases were primarily due to rise in new orders, both domestic and international. The new orders index rose to 57.9 from 52.8 in November, biggest jump in two years.

The survey showed rising input costs, which the companies were able to pass on because of the still robust demand.

"The solid demand from clients allowed manufacturing companies to increase output prices at an accelerated pace to pass on rising costs... All in all, these numbers suggest it's premature for the RBI to replace inflation with growth as the main concern," Eskesen said.

The Reserve Bank of India (RBI) has indicated it will cut policy rates if inflation moderates. The central bank has lifted repo rate 13 times since March 2010 by 3.75 percentage points to 8.5%.

The steep climb in interest rates has hit heavily leveraged companies hard and dampened demand in rate sensitive sectors such as real estate and automobiles.