By Daniel Hunter
October data indicated falling levels of production and new orders in the Indian manufacturing economy, as the business climate within India remained tough. However, there was some positive news on the export front as foreign orders grew for the first time since July.
Unchanged from September’s 49.6, the seasonally adjusted HSBC India Manufacturing Purchasing Managers’ Index (PMI) indicated a third, albeit marginal, successive deterioration of business conditions across India.
Reflective of a sustained reduction in order books, Indian manufacturers lowered their production volumes in October.
Although modest, the pace of decline accelerated from September. Incoming new work also fell at a faster rate, with survey participants commenting on weaker demand and a difficult economic climate. Some firms indicated that the cyclone Phailin had also led to fewer numbers of new orders placed.
Encouragingly, 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. The overall pace of growth was, however, moderate and weaker than the series average.
Latest data highlighted consumer goods as the best performing sector in October, with production, new orders and export business all rising. Conversely, intermediate goods was the worst performing category.
Despite reduced new orders, Indian manufacturers accumulated unfinished business in October. Backlogs of work rose at the quickest pace since July, amid evidence of powercuts. Meanwhile, buying activity fell for the third month running in October. Declines in the intermediate and capital goods categories offset growth recorded in the consumer goods sector.
Stronger new order flows at consumer goods manufacturers led firms to recruit additional workers in October. However, with investment and intermediate goods firms indicating job shedding, the overall rate of employment growth across the Indian manufacturing sector as a whole was marginal.
Inventory levels rose in October. Growth in post- production stocks accelerated to a moderate pace, while holdings of raw materials and semi-manufactured goods were accumulated for the first time in four months (although marginally).
Inflationary pressures persisted in October, with input cost inflation accelerating to a 16-month peak and selling prices rising at the fastest pace since February. Manufacturers commented that the weaker rupee had led to higher prices paid for imported raw materials and that additional cost burdens were partly passed on.
Leif Eskesen, Chief Economist for India & ASEAN at HSBC said: "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. Moreover, businesses continue to cut back purchases and a rise in inventories suggest that output will remain subdued.
"Input price inflation accelerated further despite the weak growth backdrop, as the effects of the depreciated exchange rate continue to pass through. Saddled with additional costs, firms decided to lift output prices to protect margins. This suggests that the RBI has to continue its staring contest with inflation.”
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