India’s manufacturing activity expanded at a slower pace in October as growth in output and new orders moderated, although stronger overseas demand supported production and helped cushion the slowdown.Factory employment continued to rise, while input cost inflation eased to its lowest level since February, a monthly survey showed on Monday.The seasonally adjusted HSBC India Manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, fell to 54.7 in October from 55.1 in September.Despite the decline, the index remained above its long-run average and comfortably higher than the neutral mark of 50, which separates expansion from contraction.Growth in new business remained strong, although it eased marginally from September’s seven-month high. New export orders, however, increased at their fastest pace in six months, according to the survey.Manufacturers reported higher demand from markets including Bangladesh, Canada, Indonesia, Nepal, Oman, Saudi Arabia, Sri Lanka, the UK, the US and the UAE.“Strong international demand pushed growth of new export orders to a six-month high, supporting a robust rise in output,” said Pranjul Bhandari, chief India economist at HSBC.
Output rises, but hiring growth remains subdued
Stronger overseas demand supported an increase in factory output, although the pace of production growth softened from September. The survey attributed the rise in new business to favourable demand trends, new client wins and successful marketing campaigns.Manufacturers continued to build inventories during the month. Input inventories increased at the fastest pace in eight months as companies built precautionary buffers against potential shortages and prepared to meet production requirements in a volatile global environment.Firms also increased their stocks of finished goods at a record pace in the survey’s more than 21-year history, according to Reuters. Manufacturers cited buoyant demand and efforts to prevent shortages.However, the pace of raw material purchasing growth slowed to its weakest in the 64-month sequence of expansion.Factory employment increased for the second consecutive month as higher production requirements and rising workloads encouraged companies to recruit more workers. However, the pace of job creation eased from September.Capital goods manufacturers reduced staff during the month.
Input cost inflation falls to lowest since February
Cost pressures moderated across all three broad areas of India’s manufacturing industry monitored by the survey. Although manufacturers reported higher prices for some materials and energy, the overall rate of input cost inflation declined to its lowest level since February.Selling price inflation also weakened. The increase in output prices was the slowest in nearly four years.“Although some material and energy costs increased, overall input and output price pressures eased slightly from the previous month,” Bhandari said.
Business confidence weakens
Despite continued growth in demand, manufacturers became less optimistic about the year ahead. Business confidence slipped from September and remained below its long-run average, the survey said.Close to 18 per cent of manufacturers expected output to increase over the coming year, while the rest were neutral. Expectations of higher production were supported by new client enquiries and demand for industrial automation and technology solutions.The HSBC India Manufacturing PMI is compiled by S&P Global from responses to questionnaires sent to purchasing managers at a panel of around 400 manufacturers.