India's factory output at 4-mth high in Jan; China's falls at fastest pace since 2012

Indian manufacturing sector saw an unexpected rebound in the month of January. While the Nikkei Manufacturing Purchasing Managers' Index (PMI), compiled by Markit, had seen Indian factory output take a hit and slump to a 28-month low of 49.1 in December, it unexpectedly rose to a four-month high in January. Giving a pleasant surprise, India's manufacturing sector Purchasing Managers' Index jumped to 51.1 in January.

The 50-mark demarcates contraction from expansion.

At the same time Chinese economy, which has been on a slowdown, saw its manufacturing sector fall at the fastest pace in almost three-and-a-half years in January. China's official Purchasing Managers' Index contracted to 49.4 in January from the previous month's 49.7. It is the weakest index reading since August 2012.

Interestingly, analysts had predicted both India's and China's manufacturing PMI at 49.6 for the month of January, though it meant an increase for Indian manufacturing and a slight fall for China's when compared to the December figures.

The Indian manufacturing sector saw an unexpected rise in January crossing the 50-mark, at the same time Chinese manufacturing PMI fell even below the analysts' expectations.

Factors supplementing India's strong manufacturing PMI in Jan

The Indian firms raised output in January on stronger demand. The new export orders sub-index rose to 52.5 from 51.5, the highest reading in five months, which coupled with a similar increase in domestic orders suggest renewed demand for Indian goods both home and abroad.

"The opening month of 2016 saw a rebound in new business - from both domestic and external clients - leading manufacturers in India to scale up output following a short-lived downturn recorded in December," said Pollyanna De Lima, economist at Markit.

Factors underlining a weak start in 2016 for China's manufacturing PMI

China's key sectors including steel and energy came under severe pressure on account of falling prices and over-capacity.

"The electricity production remained sluggish and the crude steel output continued the weak trend in January, reflecting an ongoing deleveraging process in the industrial sectors," said Zhou Hao, an economist at Commerzbank.

The manufacturing sector was also hit most by China's faltering construction sector, which drives demand for many industrial products.

China, which has started an aggressive capacity reduction in many sectors, could add to the downward pressure on commodity prices.

India vs China's economy

China's economic growth cooled to 6.9 per cent in 2015, the slowest pace in 25 years, adding pressure to policymakers who are already struggling to restore the confidence of investors after a renewed plunge in stock markets and the yuan currency. India, on the other hand, has outpaced China with above 7 per cent annual growth.