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India's manufacturing conditions improved in June at the strongest pace since December 2017, supported by the sharpest gains in output and new orders in 2018 so far. Reflecting greater production requirements, firms were encouraged to engage in purchasing activity and raise their staffing levels.

On the price front, input cost inflation was the sharpest since July 2014, whilst output charges rose at a stronger pace. Business confidence eased to the weakest since last October.

The Nikkei India Manufacturing Purchasing Managers Index® (PMI®) rose from 51.2 in May to 53.1 in June. This was consistent with the fastest improvement in the health of India's manufacturing economy in 2018 so far.

Manufacturing production rose in June, thereby extending the period of expansion to 11 months. Moreover, the rate of growth was sharp and the most pronounced since last December. Panellists linked greater output to favourable demand conditions. Output growth was reported across all market groups.

In tandem with the expansion in output, new business placed at manufacturers in June rose to the sharpest degree in 2018 so far. There were reports that strong underlying demand supported new client wins.

New orders from overseas rose for the eighth consecutive month. Moreover, the rate of expansion was solid and accelerated to the fastest since February. Anecdotal evidence pointed to stronger demand from key international markets.

Amid stronger demand conditions, firms raised their staffing levels in June. Although modest, job creation accelerated to the strongest in 2018 so far. Jobs growth was evident across consumption, intermediate and investment goods.

Following a fractional decline in May, firms raised their purchasing activity at the end of the quarter. Although modest, the pace of expansion quickened to the fastest since January. Panellists commented on improvements in market demand. As a result, post-production inventories held by manufacturing companies rose further in June, but only fractionally.

Input costs faced by Indian manufacturing companies rose in June, thereby stretching the period of inflation to 33 months. Moreover, the latest rise was the sharpest since July 2014. Panellists reported that steel and fuel were among the key items that increased in price. Subsequently, firms raised their output charges at the fastest pace since February.

Despite strengthening demand conditions, business sentiment was at the weakest level seen since last October. Optimistic projections for output reflected expectations that demand conditions will improve over the next 12 months, according to anecdotal evidence.

Comment:

Commenting on the Indian Manufacturing PMI survey data, Aashna Dodhia, Economist at HIS Markit and author of the report said, India's manufacturing economy closed the quarter on a solid footing against a backdrop of robust demand conditions, highlighted by the sharpest gains in output and new orders since last December. Meanwhile, orders from international markets rose at the strongest pace since February.

On the jobs front, the latest survey data pointed to a healthy labour market, with job creation accelerating to the sharpest since December 2017.

The RBI recently raised interest rates for the first time in four years to contain inflation and stabilize the rupee. However, input cost inflation quickened to the strongest since July 2014 in June, suggesting that the central bank could remain under pressure to tighten monetary policy.

Looking ahead, there was a note of caution, as business sentiment eased to the weakest since last October during June. The dip in optimism partly reflected concerns of a potential market slowdown in the year ahead. Indeed, some of the key challenges to the 12-month outlook include tighter domestic monetary policy and persistently high inflation.

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