Jan manufacturing PMI falls to three-month low as production, exports slow

Companies increase input inventories by purchasing additional materials, but hiring remains unchanged broadly

India’s purchasing managers’ index (PMI) for manufacturing fell to a three-month low in January from a two-year high in December, as production slowed and total sales and output did too, said a private survey on Wednesday.

PMI, compiled by S&P Global, fell to 55.4 last month from 57.8 in December. A survey print above 50 by the global rating agency indicates expansion in manufacturing and below that represents contraction.

The survey reflected only a slight rise in new export orders. Companies added to their input inventories by purchasing additional materials, but hiring were broadly unchanged amid sufficient staff numbers to cope with current requirements.

“The latest results suggested that the domestic market was the main source of new business growth as international sales rose only slightly in January”, the survey said.

Pollyanna De Lima, economics associate director at S&P Global Market Intelligence, said that the manufacturing industry started 2023 on a firm footing, with a robust increase in new work intakes underpinning a further expansion in production.

"Despite some loss of growth momentum, the sector looks set to at least remain in expansion mode as the final quarter of the current fiscal year draws to a close. Rising backlogs and the purchasing of additional inputs suggested that companies will continue to lift output in the coming months," she said.

The survey said that the input prices ticked higher in January, amid reports of greater chemical, electronic component, energy, metal and packaging costs, but still the rate of inflation was well below its long-run average. As a result, manufacturers lifted their selling prices in January.

"There was a mild resurgence in cost pressures, which manufacturers linked to higher prices for items like energy, metal and electronic components. The rate of cost inflation remained historically subdued, but companies nevertheless hiked their fees as demand resilience facilitated the passing on of additional cost burdens to clients,” De Lima said.

The manufacturing PMI data comes in the wake of the Economic Survey for 2022-23, tabled by Finance Minister Nirmala Sitharaman in Parliament on Tuesday, which pegged India's GDP growth for the next fiscal 2023-24 in a broad range of 6-6.8 percent, down from 7% projected for the current year, as a global slowdown is likely to hurt its exports. The Survey's baseline forecast for real GDP growth is 6.5 per cent.

The survey, however, expressed hopes that the advertising, rising client requests and upbeat expectations for demand, supported the optimism towards the year-ahead outlook for production.

“The overall level of positive sentiment slipped to a six-month low, though it remained above its long-run trend”, the survey concluded.