New Delhi: The momentum in the manufacturing sector held broadly steady in April, with a slowdown in export orders countered by firmer domestic demand, according to HSBC India Manufacturing Purchasing Managers’ Index (PMI).
HSBC, however, said that a build-up in finished goods inventories could weigh on output growth in the coming months in the absence of a pickup in total demand.
Encouragingly, inflation pressures eased, but that does not mean that the RBI can take down its inflation guards, it added.
The PMI is economic indicator derived from monthly surveys of private sector companies. HSBC conducts this survey in key economies across the world and is one of the most sought after indicators in addition to government data.
As per the survey, output growth slowed down at 51.7 in April against 52.2 in March and new orders moderated slightly at 52.5 compared to 52.7 in March.
The HSBC survey said that the backlogs of work (51.2 against 53 in March) is still rising, but at a slower pace, and supplier delivery timeliness (51.1 compared to 50.5 in March) has improved.
“While we may get more traction on economic reforms and implementation of investment projects post elections, it will still take a while before we see a notable and more sustained lift to activity,” said HSBC.
It said that there were encouraging signs of easing inflation pressures in the manufacturing cluster. “However, consumer price inflation remains elevated inflation expectations are proving very sticky and capacity remains tight in the supply-constrained economy.”
Moreover, it said that the El Nino is expected to lead to below-normal precipitation, which could lift food inflation over the summer and into the fall. “The RBI will, therefore, not have much to cheer about and will need to maintain a hawkish stance,” said HSBC.
“To the extent that output and order pipelines have been affected by elections and political uncertainty, there could be a recovery in factory activity post elections as clarity emerges on the political front,” said Citi Research in a note.
