July manufacturing up on new orders, better exports: Survey.

NEW DELHI: India’s manufacturing grew at a strong rate in July, helped by a pick up in new orders and better export demand, a private survey showed on Monday, but there was no commensurate pick up in hiring in the month.

The HSBC Markit Purchasing Managers’ Index, or PMI, went up marginally to 57.6 in July from 57.3 in June, marking 16th consecutive month of expansion in manufacturing.

The expansion comes even as China’s PMI dropped for the first time in over a year to 51.2 in July, official data released on Sunday showed.

“India is on a roll. The economy was given another leg up in July as new orders continued to pour in. Even the export sector appears to be holding up well, despite worries over cooling demand abroad,” said Frederic Neumann, co-head of Asian Economics Research at HSBC.

On the cue, India’s largest car manufacturer Maruti Suzuki reported a 29.2% surge in sales July from a year ago, substantiating the strong consumer demand. Tata Motors, the biggest automobile company, reported a 41% jump in car sales in July.

Purchasing managers index, a survey-based compilation of key manufacturing data, is considered a good leading indicator of manufacturing activity. An index level above 50 indicates expansion in manufacturing, and higher the index above that threshold greater the increase in growth. A PMI reading of below 50 indicates a contraction in manufacturing.

“It’s a good reading, especially compared to China where production was a bit softer,” said Sonal Varma, an economist at Nomura Holdings.

India’s manufacturing growth, which moderated to 12.3% in May from nearly 18% in April, could pick up momentum as the factory output index of the PMI rose to a four-month high of 62.3 in July from 60.5 in the month before.

“The growth momentum is strong and we expect the IIP to reflect the robust PMI data. However, it could be impacted to some impact by an adverse base effect,” said Deepali Bhargava, economist (financial markets), ING Vysya Bank.

A strong pick in investment activity is expected to drive the economy forward, as companies step forward to address emerging capacity constraints and infrastructure creation gathers pace.

The Centre for Monitoring Indian Economy, or CMIE, expects Indian industry to kick off projects that will entail an investment of about Rs6.5 lakh crore on fresh projects in 2010-11.

Credit growth has accelerated of late, with non-food credit growth at 21.7% as on July 2, in keeping with increased demand from corporates, though a good part of the increase could be linked to financing of 3G bids by banks.

In his July 27 monetary policy review, the RBI governor D Subbarao, while revising GDP growth target for the current year to 8.5% from 8% in its April review, said: “Domestic drivers of growth are robust.”

The strong growth prospects have, however, firmly shifted the focus of the monetary policy to managing inflation, which the central bank says has become more generalised and demand-side pressures are evident.

“Inflation is a big worry and headline inflation is likely to stay over 10% for another month or so,” Ms Bhargava said adding that the RBI could raise the key rates again in its September review.

The RBI has already lifted key policy rates by 100 basis points in the calendar year so far to moderate demand pressure on inflation, which rose to 10.55% for June.

The rising cost of credit, as the RBI lifts rates to check high inflation, could dampen sentiments. Some banks have already raised deposit rates after the latest policy announcement and repricing of credit could follow soon.

The HSBC India Report on Manufacturing is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 500 manufacturing companies. The variables included in the survey are new orders, output, employment, suppliers’ delivery times, and stock of items purchased.

Source : economictimes.indiatimes.com