Factory activity shrinks for third straight month

HSBC manufacturing PMI was unchanged at 49.6 in October

The manufacturing activity in India continued to decline for a third straight month in October, according to the widely-tracked HSBC Purchasing Managers' Index (PMI) released today.

The manufacturing PMI was unchanged from last month and stood at 49.6 points in October, indicating a contraction in the sector as a reading above 50 points indicates growth and that below 50 points depicts contraction.

The PMI had deteriorated for first time in over four years in August and has been contracting since then.

"Manufacturing activity contracted for the third consecutive month in October. Order flows remain weak, despite a bounce-back in export orders after two months of decline", said Leif Eskesen, Chief Economist for India & ASEAN at HSBC.

As a result of few orders, manufacturers lowered their production volumes in October, Markit Economics, the financial firm which compiles the data noted.

Even the effect of cyclone Phailin, which had hit the Odisha coast in October, was witnessed.

"Some firms indicated that cyclone Phailin had also led to fewer numbers of new orders being placed", said the firm.

According to Markit Economics, the export business expanded for the first time in three months during October.

"Anecdotal evidence suggested that the weaker rupee had boosted foreign demand in the latest month", said the firm.

However, the good news was that the consumer goods performed the best in October as its production, new orders and exports rose. Although, infation continued to weigh heavy on manufacturers. Input cost inflation accelerated to a 16-month peak and selling prices rose at the fastest pace since February. As a result, the additional cost burderns were partly passed on.

"Saddled with additional costs, firms decided to lift output prices to protect margins. This suggests that the Reserve Bank of India (RBI) has to continue its staring contest with inflation”, said Eskesen.

The RBI had raised repo rate by 25 basis points to 7.75% in the second quarter monetary policy review, citing inflation as the main worry.

Various sections of the government and even independent economists are of the view that the economy will start reviving from the third quarter.

But the official core numbers released yesterday showed that the eight infrastructure sectors grew at a year-high of 8% in September, hinting an industrial recovery, as per experts.

Month	Manufacturing PMI *
Oct-12	52.9
Nov-12	53.7
Dec-12	54.7
Jan-13	53.2
Feb-13	54.2
Mar-13	52.0
Apr-13	51.0
May-13	50.1
Jun-13	50.3
Jul-13	50.1
Aug-13	48.5
Sep-13	49.6
Oct-13	49.6
* The reading is in points; above 50 indicates expansion, that below 50 signals contraction Source: Markit Economics, Ministry of Statistics and Programme Implementation