Nikkei India PMI: Manufacturing shrinks for first time in 2 years

NEW DELHI: Ending a 25-month expansion run, manufacturing activity in India fell into the contraction zone in December, a private survey showed, indicating that a festival-related surge may not be sustainable.

The Nikkei India Manufacturing Purchasing Managers’ Index (PMI) dipped to 49.1 in December from 50.3 in November, data released on Monday showed. A reading above 50 on this surveybased index shows expansion, while a figure below indicates contraction.

While the PMI has fallen below 50 for the first time since October 2013, the rate of contraction was the sharpest in almost seven years.



The dismal picture of manufacturing is partly attributed to December’s incessant rainfall in Chennai, which heavily affected the sector. That, along with a drop in new work, led companies to scale back output at the sharpest pace since February 2009.

“India’s manufacturing sector took a turn for the worse at the year end, with an already gloomy internal demand further hampered by floods in the south of the country. Ending a 25-month sequence of growth, production plummeted in December,” said Pollyanna De Lima, economist at Markit, which compiles the survey. “Such was the extent of the decline that the rate of reduction was the sharpest since the financial crisis.”

Recently released core sector data also suggested a potential dip in industrial activity after an October surge. The Index of Eight Core Industries fell 1.3% in November. The core sector has a 38% weightage in the Index of Industrial Production, which grew at a five-year high of 9.8% in October.

Consumer goods was the only category with improving business conditions in December as production and new orders rose. Incoming new work and output fell in both the intermediate and investment goods market groups.

December’s floods also affected supplier performance, which deteriorated to the greatest extent since March 2013. This was despite input buying decreasing over the month. However, the survey noted that Indian goods producers hired additional workers in December.

“Anecdotal evidence highlighted hopes of an improvement in domestic demand in the near term. That said, the rate of job creation was little changed from the marginal pace seen in the previous month,” the survey said.

For the future, the survey said, “Following the Fed rate hike and expectations of further increases, more currency weakness is anticipated, adding strain to businesses’ dollar-priced debt and import costs. Whereas the frail rupee boosted growth of new business from abroad, corporate earnings can’t solely rely in external markets as global demand remains subdued.”

The continued depreciation of the rupee against the US dollar pushed inflation higher, with PMI price indicators pointing to stronger increases in both input prices and output charges.