India's manufacturing sector expanded for the third straight month in March, taking activity back to levels seen before demonetisation.
The Nikkei India Manufacturing Purchasing Managers' Index (PMI) – compiled by Nikkei and research firm Markit – rose to 52.5 in March from 50.7 in February. A reading below 50 indicates a contraction and a reading above it indicates expansion.
The Manufacturing PMI had declined sharply following the government's decision to withdraw notes of Rs 500 and Rs 1,000 on November 8. Activity levels hit a low of 49.6, indicating a contraction in the manufacturing sector, in December. However, as the cash crunch eased, manufacturing activity started to normalize and is now back at levels seen before the note exchange program was announced.
In March, the PMI was led higher by an expansion in production and orderbooks, which grew the fastest in five months, said the press release accompanying the data. A pick up in exports, in particular, supported manufacturing activity. Export growth has remained positive for six consecutive months now and hit a multi-year high of 17.5 percent in February, shows data from the commerce ministry.
The increase in total new work was supported by higher new export orders, which grew at a solid and accelerated pace. New work and output increased across the three monitored sub-sectors, with the upturn led by intermediate goods producers in both casesNikkei India Manufacturing PMI Report
Jobs in the manufacturing sector rose compared to a decline in February as companies looked to hire more to meet their capacity expansion objectives.
Business confidence among manufacturers also improved in March, said the report. Almost one-fifth of those surveyed said that they expect output levels at their units to be higher in 12 months' time. An expected pick-up in demand and the launch of new product lines, underpinned the optimism.
Looking ahead, production volumes are likely to rise further as businesses will seek to replenish their stocks. Indeed, we saw a marked drop in inventories of finished items, alongside a stronger degree of confidence towards the year-ahead outlook for output.Pollyanna De Lima, Economist At IHS Markit And Author Of The Report
In terms of costs, both input and output costs increased but the inflation rate was at the slowest in four months.
The increase in input prices largely reflected higher commodity prices. Output prices, however, increased at a slower pace as manufacturers reportedly kept selling prices unchanged to stimulate demand, said Nikkei.
The data suggest that the disruption caused by demonetisation had eased by March, said Nomura Global Markets Research in a note on Monday. However, on average, the manufacturing PMI was lower in the January-March quarter when compared to the previous quarter. This suggests that GDP growth in the March quarter may slow to 6.7 percent compared to 7 percent in the December quarter, said Nomura.
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