Business activity in Indian manufacturing sector expanded in June at its quickest pace since February driven by higher domestic and export order flows. The HSBC Manufacturing Purchasing Managers’ Index (PMI), a headline index designed to measure the overall health of the manufacturing sector, rose to 51.5 in the month of June from 51.4 in May. Though the pace of expansion was marginal over previous month, the reading remained above the crucial 50 mark for the eighth consecutive month that separates growth from contraction.

Manufacturers highlighted improved demand conditions in both domestic as well as export markets with all three broad areas of the manufacturing sector registering higher production volumes. Among the three monitored categories, capital goods sector witnessed sharpest rise in new orders. HSBC survey highlighted a marked and accelerated expansion of new export orders, pushing output sub-index to 52.4 from 51.7 in the previous two months.

Encouraged over the growing new work, Indian manufacturers also raised their quantity of purchases in the reported month. Buying activity increased at the fastest pace since March 2013 leading to high pre-production stocks. Although, the rate of stock accumulation was only slight and weaker than the long-run series trend, manufacturing firms also added workforce in June. However, the rate of job creation was marginal and slower than in the previous month.

Further, the survey signaled high inflationary pressure with the rate of cost inflation was solid and sharpest in three months. Manufacturers indicated that higher prices paid for metals, plastics, textiles, food, and energy led to a further increase in average purchase prices. Accordingly, in order to protect margins, firm increased their output prices. The rate of charge inflation was at an eight-month peak, signalling a further rise in inflation.