Manufacturing PMI continues momentum growth in November as cost pressures ease

"It was business as usual for goods producers, who lifted production volumes to the greatest extent in three months amid impressive evidence of demand resilience. New orders and exports expanded markedly in the latest month," noted Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence.

"Survey participants were also strongly confident in both the buoyancy of demand for their goods and their ability to further lift production in 2023. The level of positive sentiment recorded in November was the best in nearly eight years," De Lima added.

The latest PMI reading comes a day after data released by the statistics ministry showed India's GDP growth fell to 6.3 percent in July-September from 13.5 percent in April-June. While a sharp fall in growth was expected due to the fading away of a favourable base effect, economists were surprised by a 4.3 percent year-on-year contraction in the gross value added of the manufacturing sector in the last quarter.

However, Chief Economic Adviser V Anantha Nageswaran told reporters after the release of the data that the poor performance of the manufacturing sector in July-September was likely due to caution ahead of the festival season and the sector's performance should improve going ahead.

"That was probably a bit of a caution with respect to the festival season; manufacturers were probably reluctant to add too much to the inventory. Now that they have had a strong festive season and they are seeing that overall demand remains study, manufacturing sector outcomes should start to improve in the coming quarters," Nageswaran said on November 30.

This seems to have played out going by the PMI data released today, with S&P Global saying the stock of inputs increased at the second-fastest pace in November since July, with the rise in new orders the fastest in three months. There was even better news on the external front, with international orders growing at the second-fastest since May.

As expected, given the festive period, new orders rose the most in the
consumer and intermediate goods categories, with capital goods seeing a slowdown.

The rise in orders also led to employment increasing "solidly" in November. This is the ninth straight month in which S&P Global's survey has shown an increase in manufacuring employment.

On the inflation front, cost pressures for manufacturers cooled substantially despite the strong demand for inputs. The rise in input costs in November was the joint-weakest in 28 months, S&P Global said.

Consequently, the pass-through to output prices was subdued, with the rate of inflation the lowest in nine months. As many as 92 percent of manufacturing firms surveyed by S&P Global left their pricers unchanged from October, in what will be sweet music to the ears of India's policymakers.

The Reserve Bank of India's (RBI) Monetary Policy Committee is set to meet next week and announce its interest rate decision on December 7. It is widely expected that the MPC will increase the repo rate by around 35 basis points to 6.25 percent, given that Consumer Price Index (CPI) inflation came in at 6.77 percent in October - the 10th consecutive month it had been above the 6 percent upper bound of the central bank's mandated tolerance range.