India's manufacturing sector clocks second fastest expansion of the year in June

• The June PMI reading is the second-fastest expansion of the year, only next to May.
• The data pointed to an improvement in overall operating conditions for the 24th straight month.
• Goods producers sought to expand capacities by taking on additional workers in June

Manufacturing sector activities in India moderated in June from a 31-month high in May, but output remained in the growth territory, as new work orders expanded sharply amid favourable demand conditions, a monthly survey said on Monday. The seasonally adjusted S&P Global India Manufacturing Purchasing Managers' Index (PMI) fell from 58.7 in May to 57.8 in June. However, the June reading positions itself as the second-fastest expansion of the year, only next to May.

Despite the fall, the headline figure pointed to a considerable improvement in operating conditions, the survey said, adding that the demand strength positively impacted several other measures such as sales, production, stock building and employment.

The June PMI data pointed to an improvement in overall operating conditions for the 24th straight month. In PMI parlance, a print above 50 means expansion while a score below 50 indicates contraction.

June's PMI results again showed robust demand for Indian-made products, both in the domestic and international markets.

"Positive client interest continued to support the manufacturing industry, driving growth of output, employment, quantities of purchases and input stocks," said Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence.

Demand strength, new client enquiries and marketing efforts underpinned optimistic forecasts towards growth prospects. According to the survey, the overall level of business confidence rose to a six-month high.

On the employment front...

Goods producers sought to expand capacities by taking on additional workers in June. Employment rose at a moderate pace that was broadly similar to May.

Goods producers resorted to additional inputs buying. The increase was substantial and the second-strongest in over 12 years on positive demand trends and rising output needs.

"The surge in input buying underscored the optimism and proactive stance of manufacturers, as they sought to capitalise on favourable market conditions and obtain resources to support production growth," Lima said.

On the prices front, positive demand dynamics and greater labour costs pushed charge inflation to a 13-month high.

"Presented with buoyant demand, manufacturers seized the opportunity to adjust their pricing strategies. The latest increase in output charges reflected firms' ability to pass on higher cost burdens to customers while maintaining a competitive edge," Lima noted.

The S&P Global India Manufacturing PMI is compiled by S&P Global 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. Data collection began in March 2005.

(Text input from PTI)