Production activity in Indian factories jumped to 17-month high in July driven by a flood of new orders, data from a monthly survey showed, rekindling hopes of a rebound in the Indian economy battling a prolonged slump.
The HSBC Manufacturing Purchasing Managers’ Index (PMI), compiled by Markit, grew to 53 in July from 51.5 in June, indicating strong improvement in business conditions.
PMI is a metric for industrial activity capturing output to sales. A reading above 50 indicates growth in factory output.
“A flood of new orders from both domestic and external sources has led to a surge in activity,” Frederic Neumann, HSBC Asian research co-head said. “Finally, the manufacturing sector is starting to pick up.”
The data confirmed reports of further improvements in demand as new orders increased at an accelerated pace, extending the current sequence of growth to nine months.
Sector figures indicated a marked rise of new work intakes in the intermediate goods category. Similarly, new business from abroad rose for the tenth successive month in July.
The infrastructure sector, which accounts for 38% of India’s total industrial output, grew at 7.3% growth in June – a nine-month high—against 1.2% over the same period last year.
Sounding a word of caution, HSBC said input price pressures have risen sharply and supply side constraints still limit the pace at which growth can recover without stoking inflation.
“This means that the RBI (which will present in monetary policy next week) may not cheer as loudly as the rest of us,” Neumann said.
The report added that the government has been proactive in addressing potential price risks.