HSBC Manufacturing PMI rebounds in October

Rise due to new contract wins and general improvements in demand

The manufacturing activities expanded at a bit higher pace in October compared with the previous month on increased demand, showed the widely-tracked HSBC Purchasing Managers’ Index (PMI) survey. The slight increase in factory production and associated confidence level led companies to slightly raise output prices, a point used by a commentator to caution the Reserve Bank of India (RBI) against relaxing its monetary stance.

The index rose to 51.6 points in October from 50 in September, which was a nine-month low. However, the rise in PMI in October was not much despite it being a festival month. In August, PMI was much higher at 52.4 points.

A PMI reading above 50 indicates expansion while one below it implies contraction.

“The latest reading was consistent with a moderate improvement in business conditions during the month (October),” Markit Economics, which compiles PMI data, said in a statement.

New business increased for the 12th month in a row in October, with panel members attributing the latest expansion to new contract wins and general improvements in demand. Growth of new business was broad-based by sector, with the strongest rise recorded in intermediate goods. It is yet to be seen if the numbers would also be reflected in official data which showed that manufacturing contracted in August and July.

Foreign orders received by Indian manufacturers rose in October, extending the current sequence of growth to 13 months. The rate of expansion accelerated to the most marked in four months and was robust overall. Surveyed firms generally commented on strengthening demand from key export clients.

If this is also reflected in official export numbers, it would be a turnaround from sub-five per cent growth in the outbound shipments witnessed in August and September.

Frederic Neumann, co-head of Asian Economic Research at HSBC, said manufacturing activity picked up modestly amid stronger output and new order flows, particularly from overseas clients. However, firms continued to trim purchases and refrained from aggressive inventory accumulation, he said.

Levels of employment in the manufacturing sector were broadly stable for the second straight month in October. Fractional job shedding at producers of consumer and investment goods was offset by hiring in intermediate goods.

Finally, inflationary pressures from input costs and output charges remained muted in October. Higher prices paid for metals, plastics, paper and textiles and fabrics led to the 67th consecutive monthly rise in input costs; although the rate of cost inflation slowed to the weakest in 17 months.

Similarly, despite accelerating since September, the pace of output inflation was slight overall. Among the monitored sub-sectors, the only reduction in selling prices occurred in intermediate goods.

Neumann said the improvement in growth allowed firms to raise margins by increasing output prices slightly.

“This trend could strengthen with growth, which is why the RBI will remain cautious about relaxing its grip at this juncture,” he said.