Factory activity grows in February on better demand

India's manufacturing sector activity bounced back in February buoyed by an accelerated pace of new orders supported by favourable demand conditions and higher production, a private survey showed Wednesday.

The IHS Markit India Manufacturing Purchasing Managers' Index (PMI) rose to 54.9 in February from 54 in January. A reading above 50 on the index shows expansion and below that indicates contraction.

The February PMI data pointed to an improvement in overall operating conditions for the eighth straight month.


"Growth has now been seen in each of the latest eight months, with the headline figure remaining above its long-run average of 53.6," IHS Markit said in a report.

Shreeya Patel, economist at IHS Markit said the Indian manufacturing sector had "weathered the storm" of the Omicron-variant-led third wave.

As per the report, rates of expansion picked up at intermediate and capital goods firms but eased for consumer goods makers. Demand from international clients rose at the quickest pace in three months but employment decreased in February.

"Latest PMI data for India's manufacturing sector revealed an improvement in operating conditions in February...sustained increases in backlogs could lead to higher employment levels in the months ahead should capacity pressures continue," Patel said.

The report highlighted some key concerns that continued to threaten growth, the most prominent of which were elevated cost pressures due to shortages amid longer delivery times. "However, a key threat to manufacturers comes from only marginal increases in selling prices. Despite expenses rising sharply, firms passed on only part of this burden to clients, suggesting pressure on profit margins," said Patel.

Rahul Bajoria, Chief India Economist at Barclays said that the surge in crude oil prices casts a long shadow on India's recovery in the near term. "However, the PMI's recovery may not last for long, as domestic fuel prices are expected to rise in March," Bajoria said.

Purchase price inflation was sharp, but softened to a six-month low, according to the report.

As for business sentiment, IHS Markit said that an improvement was seen midway through the quarter, underpinned by business expansion plans, a return to normality and hopes for fruitful marketing. The degree of optimism remained below its long-run average, however.