HSBC manufacturing PMI at two-year high in December

There is some heartening news for the Indian manufacturing sector. The HSBC India Purchasing Managers' Index, an indicator of operating conditions in the manufacturing sector, climbed to a two-year high of 54.5 in December 2014 from 50.7 in December 2013.

The PMI, which was released on Friday, was at 53.3 in November 2014. The climb in December packs two surprises - the consumer goods sector showed the fastest expansion and exports recorded the strongest growth since April 2011.

This may appear surprising considering that the last industrial production numbers stated a different story. The IIP for October was 4.2 per cent lower compared to October 2013. Manufacturing shrank 7.6 per cent. Consumer goods shrank 18.6 per cent. But that was October. Things may have changed since.

The latest HSBC PMI data is telling a story of revival in consumer sentiment. Indian consumers have more real purchasing power because of low inflation and are perhaps loosening their purse strings to buy more consumer goods.

On the exports side, the holiday season sales have held up well, particularly in the US where Indian manufacturers are anticipating consumer demand to remain buoyant in 2015. Nevertheless, it would be interesting to watch whether exports demand from the US can offset weakness in other advanced economies this year.

Nevertheless, the PMI numbers for now imply a better IIP for November and December. Both the PMI and IIP surveys have different sample sizes and IIP data do get revised - Pranjul Bhandari, Chief India Economist at HSBC, believes that overtime, both the surveys do point to a similar trend. Indian manufacturers would hope for the same.