HSBC India Manufacturing PMI For June 2013 At 50.3

India’s manufacturing activity is measured by HSBC Purchase Manager Index (PMI), which saw a marginal improvement for the month of June 2013. It stood at 50.3 for the month of June 2013 against a forecast of 49.8 and 50.1 for the month of May 2013. Any reading above 50 shows expansion in manufacturing activity whereas that below 50 shows contraction.

The rise was led by an uptick in the export business, which rose at the sharpest rate since January 2013, as demand from key foreign clients strengthened. Overseas orders expanded for consumer and intermediate goods producers. The investment goods sector, however, registered a decline. There also was a decline in the domestic order but the finished goods inventory rose which points towards restocking. This might lead to a fall in the output in the next few months if domestic demand fails to rise.

According to Leif Eskesen, Chief Economist for India & ASEAN at HSBC, “Manufacturing activity was broadly flat in June. The output continued to contract due to power shortages, albeit less so than last month. Moreover, new orders also witnessed contraction led by weaker domestic demand”. 

On the price front, input cost inflation saw the sharpest rise since February 2013, partially due to unfavourable exchange rates. This was not reflected in output inflation as increased competition weaned away the pricing power.
Considering an average of the first quarter of FY14 (April-June), the PMI stands at 50.5 against 53.1 recorded in the last quarter of FY13. This suggests that there was an overall deceleration in manufacturing activity in the first quarter on a yearly basis.

Meanwhile, the month of June saw the fastest rise in employment since March 2013. However, it was restricted by the unavailability of labour, said a HSBC report.

Going forward, we may see imported inflation inching up due to an adverse exchange rate movement. This might limit the RBI’s chances of easing monetary policy despite weak overall growth.

A separate report by HSBC for China showed that China’s final HSBC Flash Purchasing Managers Index fell to 48.2 in June from a flash reading of 48.3 and down from 49.2 in May. In contrast to the Indian condition, such a fall in the Chinese activity was primarily a result of the fall in orders, chiefly from the US and Europe.

This fall in manufacturing activity along with the recent credit crunch does not augur well for the world’s second largest economy. This will also impact all its trading partners especially the commodity exporting countries that rely upon the manufacturing activity of China to lift the demand of their commodities.

Nonetheless, as per the Chinese government’s report, China’s manufacturing PMI index for the month of June stands at 50.1, which is still showing an expansion in activity.