Manufacturing activity eases to 58.1 in July, experts foresee pickup in capex utilisation soon

Manufacturing PMI for July

Manufacturing activity eased to 58.1 in July from 58.3 a month back, as new orders and ouput growth slowed marginally, results of a private survey released on August 1 showed.

“India’s headline manufacturing PMI showed a marginal slowdown in the pace of expansion in July, but with most components remaining at robust levels, the small drop is no cause for concern," said Pranjul Bhandari, chief India economist, HSBC.

The seasonally adjusted HSBC India Manufacturing Purchasing Managers’ Index remained higher than the long-term average for yet another month, as the economy kept humming at the start of the second quarter.

Exports remained a bright spot with international sales expanding at the second-strongest rate in over 13 years.

Favourable demand conditions helped keep employment levels high, but also pushed input costs higher with inflation galloping.

Producers were able to pass on the costs to consumers with rate of inflation rising to its highest level in about 11 years.

"The continuous increase in the output price index, driven by input and labour cost pressure, may signal further inflationary pressure in the economy,” Bhandari added.

Infrastructure output data released on July 31 showed growth easing to a 20-month low of 4 percent in June owing to a slowdown in government spending and a high base from the previous year.

However, experts indicate a pickup in capex utilisation in the coming months.

Another set of data released simultaneously with infrastructure sector numbers showed that the capex utilisation was low in the first quarter at 16.8 percent of the full-year target compared with 23 percent in the previous year.

The high policy rates are likely to have a bearing on the economy in the second quarter, as economists expect the RBI to hold rates for the ninth consecutive time at its meeting next week.

Experts have been pencilling in a rate cut in October. Expectations of a rate cut are likely to rise, as the Federal Reserve chair Jerome Powell hinted that a September rate cut was on the table.