Indian Manufacturing Sector Declining at Faster Pace: IHS Markit

The IHS Markit India manufacturing latest Purchasing Managers' Index (PMI) data released points to another marked deterioration in the health of Indian manufacturing sector with output contracting at a slightly faster pace than in June.

Demand conditions remained subdued with some businesses still closed amid lockdown extensions. Firms responded by cutting both staff numbers and purchasing activity.

However, despite the ongoing negative impact of the coronavirus disease 2019 (COVID-19), sentiment towards future activity improved for the second month running.

At 46 in July, the seasonally adjusted IHS Markit India Manufacturing PMI fell from 47.2 in June and pointed to a marked deterioration in business conditions across the Indian manufacturing sector.

The downturn was partially driven by a further contraction in output. Although far softer than recorded in April and May, the rate of reduction accelerated from June and was sharp overall.

Anecdotal evidence indicated that firms pared-back production in line with weaker demand conditions. Subdued demand was evidenced by another marked decrease in new orders placed with manufacturers during July.

Similar to the trend for output, the pace of decline accelerated from June but remained slower than at the height of the current crisis.

When explaining falling sales, panellists often cited prolonged closures at their clients' businesses. Weighing on aggregate demand was a further contraction in new export orders at the start of the third quarter.

Survey participants said international clients were hesitant to place orders while the duration of the pandemic remained uncertain. The latest reduction in exports was the softest for four months.

Deteriorating demand conditions led Indian manufacturers to continue cutting staff numbers during July. The rate of workforce contraction was little-changed from June and faster than any recorded prior to the COVID-19 pandemic.

Amid softer inflows of new orders, goods producers also pared back their purchasing activity in July. The result extended the current sequence of decline to five months. The rate of decline was quicker than in June and solid overall.

"The survey results showed a re-acceleration of declines in the key indices of output and new orders, undermining the trend towards stabilisation seen over the past two months," said Eliot Kerr, Economist at IHS Markit.

"However, on a more positive note, firms remained optimistic with confidence towards future activity continuing to strengthen during July."

The IHS Markit India Manufacturing PMI is compiled from responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers. The panel is stratified by detailed sector and company workforce size based on contributions to GDP.

IHS Markit is a world leader in critical information, analytics and solutions for the major industries and markets that drive economies worldwide. The company delivers next-generation information, analytics and solutions to customers in business, finance and government.