Manufacturing activities accelerated to an eight-month high in October but could not arrest job shedding by companies as the existing capacities were enough to meet the rising demand, showed IHS Markit purchasing managers index (PMI) survey. Also, firms claimed input costs hit a 92-month high, prompted a few of them to raise selling prices.
PMI rose to 55.9 in October from 53.7 in the previous month. The reading in October was the highest since February.
Firms stepped up input purchases amid stock-building efforts and in anticipation of further improvements in demand, while business optimism hit a six-month high, IHS Markit said in a commentary associated with the survey.
Pollyanna De Lima, Economics Associate Director at IHS Markit, said, "With companies gearing up for further improvements in demand by building up their stocks, it looks like manufacturing activity will continue to expand throughout the third quarter of fiscal year 2021-22 should the pandemic remain under control."
"For example, the published seasonally adjusted Output Index was at 59.1 versus the unadjusted figure of 61.5," De Lima told Business Standard in an email reply.
Madhavi Arora, lead economist at Emkay Global Financial Services, said India wasn't an outlier in improving manufacturing PMI in October. The aggregate emerging market Asia PMI appears to have improved with even China rising further 0.6 point to 50.6, registering the highest reading in four months.
Predictions that business conditions will improve further as the pandemic retreats boosted confidence, IHS Markit said.
Rahul Bajoria, India chief economist at Barclays, said the improved pace of vaccinations and relative control over new infections likely helped boost business optimism.
Respondents to the survey continued to report rising prices for several materials and transportation, with overall input costs increasing at the sharpest rate since February 2014. Anecdotal evidence highlighted higher chemical, fabric, metal, electronic components, oil, plastic and transportation costs. Subsequently, a few companies raised selling prices again.
Lima said,""Of concern, input cost inflation accelerated substantially in October — to a near eight-year high — as strong global demand for scarce raw materials continued to push up prices for these items."
Despite the notable upturn in new orders, manufacturers were able to keep on top of their workloads, as signalled by another reduction in backlogs.
This lack of pressure on capacity, besides government guidelines surrounding shift work, meant that employment continued to decline. That said, the rate of job shedding was marginal.
While strong growth of both sales and production were noted in each of the three broad areas of the manufacturing sector, it was in intermediate goods that the sharpest rates of expansion were recorded.
PMI figures portray more optimism compared to official figures for the crucial core sector production which grew at a modest rate of 4.4 per cent in September against 11.5 per cent in August. This may drag down the index of industrial production for September since the core sector has 40 per cent weight in the index.
However, official figures are year-on-year growth, while PMI is a month-on-month calculation. In fact, the core sector contracted sequentially by five per cent in September over August. One has to see the figures for October core and IIP when festival season is on to see if PMI figures are in consonance with the official ones.
In addition to reporting a substantial increase in total new orders, Indian companies observed a notable pick-up in international demand for their goods. New export work rose at a solid pace that was the quickest in three months.
The latest official trade figures, however, showed that merchandise exports growth moderated to 22.6 per cent in September against 45.6 per cent in August.