The rate of expansion in India’s manufacturing industry continued to gain strength in January as firms responded positively to a sharp improvement in demand. January saw growth of new business, output, exports, input buying and employment gather speed. At the same time, business sentiment strengthened and there were softer rises in both input costs and output charges.
The headline seasonally adjusted IHS Markit India Manufacturing PMI® rose from 52.7 in December to 55.3 in January, its highest level in just under eight years. The consumer goods sub-sector remained the brightest spot, although growth was sustained in intermediate goods and capital goods moved back into expansion.
Companies noted the strongest upturn in new business intakes for over five years, which they attributed to better underlying demand and greater client requirements. A number of firms also suggested that marketing efforts bore fruit.
The rise in total sales was supported by strengthening demand from external markets, as noted by the fastest increase in new export orders since November 2018. Manufacturers particularly noted higher sales to clients in Asia, Europe and North America, with favourable exchange rates assisting the upturn.
In response to the pick-up in demand, Indian goods producers scaled up production in January. Moreover, the rise was the strongest in over seven-and-a-half  years, with the rate of  expansion much higher than its long-run average.
Such was the strength of the rise in sales that some firms had to use their stocks to fulfil order obligations. As a result, inventories of finished products declined sharply in January.
On the other hand, holdings of raw materials and semi-finished items increased at the start of the year. The accumulation was the first in six months and the most pronounced since May 2017. Stock building efforts were linked to robust order inflows and the impending launch of new products.Â
Supporting the rise in input stocks was a further increase in quantities of purchases, the second in successive months. The expansion in buying levels was the strongest in a year.
Hiring activity improved in January, with firms increasing employment at the quickest rate in close to seven-and-a-half years. New business growth and projects in the pipeline were cited as the main reasons for job creation.
With capacities being expanded by further hiring, companies were able to stay on top of their workloads. Unfinished business was broadly unchanged in January, ending a six-month sequence of accumulation.
On the price front, there were slower increases in both input costs and factory gate charges. While   some firms reported higher prices for metals, textiles and food, others noted lower fees for copper, packaging materials and rubber. For the third month in a row, the rate of charge inflation surpassed that seen for costs.
Indian manufacturers were more upbeat about the year-ahead outlook for production. Optimism stemmed from forecasts of better demand, new client wins, marketing efforts, capacity expansion and new product releases.