Consumer goods was the key source of growth, where robust increases in sales, output and employment were registered.
The Indian manufacturing sector lost growth momentum in June, following an acceleration in May. A softer increase in new work intakes translated into slower rises in output and employment, while the upturn in quantities of purchases strengthened. June data continued to show only a moderate increase in input costs, which in turn supported another round of selling charges discounting.
The IHS Markit India Manufacturing Purchasing Managers' Index® (PMI®) was at 52.1 in June, down from May's three-month high of 52.7 but still signalling an improvement in operating conditions across the sector. That said, the average PMI reading for the opening quarter of fiscal year 2019/20 was the lowest recorded since the second quarter of FY18.
Consumer goods was the key source of growth, where robust increases in sales, output and employment were registered. Modest expansions in production and new work were noted in the intermediate goods category, but here jobs stagnated. At the same time, operating conditions in the capital goods sector were broadly unchanged.
Aggregate manufacturing production increased in June, as has been the case for nearly two years. Growth was associated with the securing of new work and technological progress. However, the overall pace of expansion eased from May and was moderate.
Underpinning the slowdown in output growth was a softer rise in new work intakes. The upturn in total sales was the second-slowest in nine months, ahead of that noted in April. Among those firms that secured new business, there were mentions of successful advertising and a higher clientele.
Growth of new export orders showed signs of weakness, easing Softer upturn in sales underpins slower output growth Weaker increase in employment Subdued cost inflation enables firms to lower charges to the second-slowest in over a year. Consumer goods exports rose markedly, while marginal increases were noted in the intermediate and capital goods segments. The latter was the weakest link in June.
Firms' willingness to spend continued in June, with additional staff being hired and further raw materials purchased. While there was a slowdown in job creation, the upturn in input buying picked up to a four-month high. Suppliers comfortably accommodated for the uptick in input buying growth, as signalled by an overall reduction in delivery times.
Subsequently, input stocks rose further. Furthermore, the rate of accumulation was the quickest in over two years. On the other hand, there was another decline in inventories of finished goods.
The recent trend of only modest increases in input costs was stretched to June. This, coupled with efforts to boost demand, led producers to offer discounts for their goods. Manufacturers remained upbeat about growth prospects in June, with marketing initiatives, stable political conditions and forecasts of a pick-up in demand underpinning positive sentiment. However, the degree of optimism weakened slightly from that recorded in May.
Commenting on the latest survey results, Pollyanna de Lima, Principal Economist at IHS Markit, said: "PMI data highlighted a slight setback in the Indian manufacturing sector during June. Gauges of factory orders, production, employment and exports remained inside growth territory, but rates of expansion softened in all cases as domestic and international demand showed some signs of fading. "Upbeat growth projections continued to underpin job creation and the stockpiling of inputs, but cracks appeared in the form of a softer rise in employment and waning
optimism. "Also, a further decline in unfinished business points to excess capacity among goods producers, meaning that job creation may come to a halt in the near term should demand growth fail to revive.
"Firms tried to boost sales by offering price discounts for their goods, in light of subdued rises in cost burdens. Tamed cost inflation may assist competitive pricing and lift demand to a meaningful extent as we head into the second half of 2019."
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Sources: IHS Markit, CSO.
