The report, produced by Markit, states that December's incessant rainfall in Chennai impacted heavily on the sector, with falling new work leading companies to scale back output at the sharpest pace since February 2009. "On the price front, inflation rates of both input costs and output charges were at seven month highs. Dipping from 50.3 in November to 49.1 in December," it states.
The composite single-figure indicator of manufacturing performance pointed to a deterioration in operating conditions across the sector, with the PMI posting below the no-change level of 50.0 for the first time since October 2013.
Commenting on the Indian Manufacturing PMI survey data, Pollyanna De Lima, Economist at Markit and author of the report, said that "India's manufacturing sector took a turn for the worse at the year end, with already-gloomy internal demand further hampered by floods in the South of the country".
According to her, it ended a 25-month sequence of growth, and the rate of reduction was the sharpest since the financial crisis. "The continued depreciation of the rupee against the US dollar pushed inflation higher, with PMI price indicators pointing to stronger increases in both input prices and output charges. Following the Fed rate hike and expectations of further increases, more currency weakness is anticipated, adding strain to businesses' dollar-priced debt and import costs. Whereas the frail rupee boosted growth of new business from abroad, corporate earnings can't solely rely in external markets as global demand remains subdued."
However, the report points out that the consumer goods bucked the sub-sector trend and was the only category to see improving business conditions in December as production and new orders rose. Also Encouragingly, Indian goods producers hired additional workers in December to suggest, through anecdotal evidence, expectations of an improvement in domestic demand in the near term.
The Nikkei India Manufacturing PMI is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 300 industrial companies. The panel is stratified by GDP and company workforce size. The manufacturing sector is divided into eight broad categories - Basic Metals, Chemicals & Plastics, Electrical & Optical, Food & Drink, Mechanical Engineering, Textiles & Clothing, Timber & Paper and Transport.
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