January factory growth slips as new orders rise more slowly

NEW DELHI: Manufacturing growth slipped to a three-month low in January -- after a two-year high in the previous month on slower pace of order flows from domestic and global markets, raising hopes of a rate cut by the RBI.

The Reserve Bank is scheduled to review its policy rates tomorrow amid a growing clamour in the industry to bring down the cost of capital to boost the manufacturing sector.

According to the monthly HSBC-Markit survey released today, India's headline Purchasing Managers' Index (PMI) -- a composite gauge of manufacturing business conditions -- fell from December's two-year record of 54.5 to 52.9 in January.

A figure above 50 indicates the sector is expanding, while a figure below that level means contraction.

"Manufacturing activity continued to signal improvement in January, though the rate of growth slipped to a three-month low," HSBC's Chief India Economist Pranjul Bhandari said.

The slip in growth rate can partly be attributed to consolidation after two months of impressive upticks, it said.

The latest data signals sustained growth of manufacturing activity at the start of 2015, with output and new orders rising simultaneously for the fifteenth consecutive month.

"New orders, both from domestic and international sources, also continued to grow, though at a slower pace than in December. New orders were strongest in the consumer goods sector," Bhandari said.

Meanwhile, growth of output and new business continued to have little impact on employment in January, as workforce numbers rose only marginally during the month.

On the price front, lower prices paid for metals, chemicals, plastics and energy led to the weakest rise in input costs. Accordingly, output charges rose only fractionally during the month.

"On the inflation front, growth in input and output prices moderated further due to cheaper commodity prices. Sluggish growth and falling inflation further reinforces our view that the RBI should deliver upfront rate cuts. We expect the repo rate to be lowered by 75 bps in the first half of 2015," Bhandari said.

The Reserve Bank of India, which last month announced a surprise rate cut of 25 basis points after maintaining a hawkish monetary stance for 20 months, is scheduled to undertake its sixth bi-monthly monetary policy review, 2014-15 on Tuesday, February 3.

While the retail inflation slipped to 5 per cent in December, the Wholesale Price Index (WPI) inflation remained near zero level (0.1 per cent).

According to bankers and economists, there is room for further rate cut by the RBI as retail and wholesale inflation rates have remained benign.

The concerns on fiscal deficit front have also eased, especially after the government last week garnered a record Rs 22,577 crore through disinvestment of 10 per cent stake in Coal India.