Manufacturing activity eases for 2nd straight month in July

Manufacturing sector activities in India moderated for the second straight month in July as rates of expansion in output and new orders eased slightly, a monthly survey said on Tuesday.

The seasonally adjusted S&P Global India Manufacturing Purchasing Managers' Index (PMI) eased to 57.7 in July from 57.8 in June.

Despite the fall, the Indian manufacturing sector maintained strong growth momentum at the start of the third quarter amid ongoing buoyant demand, the survey said.

The July PMI data pointed to an improvement in overall operating conditions for the 25th straight month.

In PMI parlance, a print above 50 means

expansion while a score below 50 indicates contraction.

"The Indian manufacturing sector showed little sign of losing growth momentum in July as production lines continued to motor on the back of strong new order growth," said Andrew Harker, Economics Director at S&P Global Market Intelligence.

Rates of expansion in output and new orders were only marginally softer than in June, with firms expanding their employment and purchasing activity accordingly, the survey said.

"Pressure continued to come on capacity, prompting firms to expand employment solidly again, a trend that is likely to continue in the months ahead should demand remain strong," Harker said.

Harker added that "all in all, the Indian manufacturing sector has maintained its position as one of the star performers globally, bucking the trend of demand weakness seen in other parts of the world."

According to the survey, reports of demand improvements were widespread and resulted in another marked expansion of new orders in the sector.

Growth in new export business picked up to the fastest since last November.

Respondents noted increase in new orders from customers in the US and neighbouring countries such as Bangladesh and Nepal, it said.

Firms responded to greater workloads by taking on extra staff.

The solid pace of job creation was broadly in line with those seen in May and June.

On the inflation front, cost inflationary pressures remained relatively muted.

The rate of input cost inflation accelerated to a nine-month high in July.

Panellists reported higher costs for raw materials, in particular cotton.

These higher prices for raw materials, plus rising labour costs, led firms to increase their selling prices, the survey said, adding that the rate of inflation was solid, but eased to a three-month low.

Firms generally expect demand to remain elevated over the coming year, supporting projections for growth of production.

"Confidence was slightly lower than that seen in June, but remained above the series average.

"Around 32 per cent of respondents predicted a rise in output, with just 2 per cent pessimistic," the survey said.

The S&P Global India Manufacturing PMI is compiled by S&P Global from responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers.

The panel is stratified by detailed sector and company workforce size, based on contributions to GDP. Data collection began in March 2005.