Manufacturing PMI hits 22-month high in October

Growth in India’s manufacturing activity touched a 22-month high in October, with a stronger rise in new orders and output, showed the widely tracked Nikkei India Manufacturing Purchasing Managers’ Index (PMI).

Even so, companies did not generate additional employment. Meanwhile, inflationary pressures picked up on the more accommodative stance of the Reserve Bank of India (RBI) and companies passed on higher prices. RBI’s stance boosted manufacturing growth. The PMI rose to 54.4 in October, after falling to 52.1 in September from 52.6 in August. The 50-point mark separates expansion from contraction.

Data on the Index of Industrial Production (IIP) showed manufacturing output declined for July and August.  The eight-industry core sector index, comprising almost 38 per cent of the IIP, rose to a three-month high of five per cent in September, giving broad indications that manufacturing might increase in September and could be sustained in October because of festival season demand.

The latest PMI reading showed robust improvement in manufacturing business. Once again, consumer goods producers outperformed their intermediate and investment goods counterparts, with stronger expansion for both output and orders.

In October, output increased for a 10th straight month and at the quickest rate in nearly four years. In spite of this, businesses left employment unchanged, a trend that has continued for many months.

The amount of new work received by manufacturers grew markedly during October, with anecdotal evidence linking the latest rise to improved underlying demand. The rate of expansion was at a 22-month high. Although data indicated that foreign orders contributed to the upturn in total new work, the rate of growth in new business from abroad eased to a three-month low.

The overall rate of accumulation was the quickest in almost three years, with survey members reporting capacity pressures.

Amid reports of orders being fulfilled directly from stocks, holdings of finished goods decreased again. That said, the rate of inventory depletion was modest and little changed since September.The average price of inputs rose markedly, with the rate of inflation quickening to the fastest since August 2014.

Survey participants reported higher prices across a wide range of goods but particularly highlighted steel, plastics and petrol. Companies passed on to clients part of these higher cost burdens by raising their prices.

Pollyanna De Lima, the report's author, said: "The sector looks to be building on the foundation of the implied pick-up in growth in the previous quarter. Supporting this was RBI's announcement of a further 25 basis-point reduction in its policy rate. The extended easing cycle, however, brought upside risks to inflation."