Stronger order book aided India's manufacturing activity which improved in January, bouncing back from a contraction in December triggered by the government's scrapping of high value banknotes, a business survey showed on Wednesday.
The Nikkei India Manufacturing Purchasing Managers' Index – compiled by Nikkei and research firm Markit – stood at 50.4 in January compared to 49.6 in December. A reading below 50 indicates contraction. The index was at a 22-month high of 54.4 in October before the demonetisation announcement was made.
In a sign that factories have started the year on a better footing, the sub-index measuring new orders also nudged back above the breakeven mark, with domestic demand driving the pace as export orders remained in contraction.
Intermediate goods were the bright spot in January, with rates of expansion in both new work and production bettering those seen in the consumer goods sector.
Survey data pointed to an increasing degree of pressure on the capacity of manufacturers' operations as backlogs rose at a quicker rate than in December. Manufacturers attempted to replenish their input stocks by purchasing greater quantities of raw materials and semi-finished items in January.
The Indian manufacturing economy recovered from the one-off downturn that hit the sector inDecember following the withdrawal of high-value banknotes. Improving confidence among firms bodes well forthe outlook, with the expansion in manufacturing output likely to pick up pace in coming months. IHSMarkit forecasts a 6.9% rise in GDP for FY16, with growth anticipated to accelerate to 7.4% in FY 2017.Pollyanna De Lima, Economist, IHS Markit
Eye On Services PMI
With the manufacturing sector showing signs of recovery post the demonetisation drive, eyes will now be on the services PMI which contracted for the second straight month in December. The Nikkei India Services Purchasing Managers' Index was at 46.8 in December.
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