Factory activity in June accelerates at fastest pace in 4 months

NEW DELHI: Manufacturing activity grew at its fastest pace in four months in June although it remains on the lower side, an HSBC survey said, in a sign that the country’s economy may be picking up steam slowly.

The HSBC manufacturing purchasing managers’ index ( PMI) — which gauges factory activity based on data from 500 large companies — inched up to 51.5 in June from 51.4 in May on the back of improved export orders and higher output.

A reading of more than 50 in the index shows expansion. "Things are gradually improving in India’s manufacturing sector. Output picked up in June, supported by growing order flows, especially from overseas," said Frederic Neumann, co-head of Asian Economic Research at HSBC.

Citibank economist Rohini Malkani said flattish PMI for the last four months "suggests that the manufacturing sector remains in cautious mode even after elections". "The upcoming budget and the July rains are likely to be key drivers in the coming months," she said in a note on Tuesday.


The month-old BJP government is expected to take several steps — from amending labour and land laws to opening up sectors such as defence and construction to foreign direct investment — to reverse the manufacturing sector downturn, one of the main factors pulling down the country’s growth to a sub-5% for two straight years.

The manufacturing sector contracted 0.7% in 2013-14, the first decline since 1991-92, as per the national accounts data released by the Central Statistics’ Office.

On Monday, the government had released data that showed core sector growth slowed to 2.3% in May from 4.2% in April. However, with most carmakers, led by market leader Maruti Suzuki, on Tuesday reporting robust sales growth in June, manufacturing activity may pick up speed in the coming months.

June was the eighth straight month of growth in factory activity and it recorded the fastest pace of expansion since February, helped by new contracts. All three broad areas of the manufacturing sector registered higher production volumes, led by consumer goods, the HSBC report said.

New export orders grew at a three-month high in June as demand recovered in the western economies.

"There was a marked and accelerated expansion of new export orders received by Indian manufacturers," the report said. Exports revived in May, registering a seven-month high growth of 12.4% led by textiles, engineering and project goods.

On the inflation front, the report said higher rates paid for metals, plastics, textiles, food and energy pushed average purchase prices, and this rise in input costs was passed on to clients.