Business conditions stagnate in October: Nikkei India Manufacturing PMI

Nikkei India Manufacturing PMI eases to 50.3 in October 2017

Growth in India's manufacturing sector lost momentum in October. Output rose only fractionally and new orders stagnated over the month. In response to subdued demand conditions, both purchasing activity and pre-production inventories decreased. Encouragingly, firms added to their payroll numbers at a similar pace to September's 59-month high in response to greater volumes of outstanding business.

On the price front, input cost pressures rose to the fastest since May. Subsequently, firms reportedly raised their output prices to pass on greater cost burdens to clients and to protect profit margins. Meanwhile, the level of business confidence eased to the weakest since February.

At 50.3 in October, the Nikkei India Manufacturing Purchasing Managers Index (PMI) fell from 51.2 in September. This indicated a broad stagnation in the health of the manufacturing sector during October. At the sector level, improvements in consumer goods negated deteriorations in investment and intermediate goods.

The downward movement in the headline index was partly driven by a stagnation in new business. Panellists linked subdued demand conditions to negative impacts of GST. Meanwhile, new export orders for Indian goods reduced in October. Moreover, the rate of contraction was the fastest since September 2013.

Output growth eased to a fractional pace, and one that was the slowest in the current three-month period of rising production. Where an increase in output was registered, firms associated this with stronger demand. Where a decrease in output was observed, firms blamed the negative effects of GST.

Employment increased for the third consecutive month in October. The rate of payroll growth was modest and broadly unchanged from September's recent high. Firms associated a rise in employment with greater outstanding business.

On the price front, manufacturing companies continued to face higher input costs, which rose at the fastest pace since May. Firms raised their output charges to pass on higher cost burdens to clients. That said, their ability to fully pass on higher input costs was restricted due to competitive conditions. Reflecting subdued demand conditions, firms were discouraged from engaging in input buying. Purchasing activity fell for the first time in three months, albeit marginally. Meanwhile, preproduction stocks reduced in October.

Delivery times lengthened for the seventh month running. That said, the rate of deterioration in vendor performance was only marginal. A lack of raw materials disrupted supply chains across the manufacturing sector, according to anecdotal evidence.

Finally, the level of positive sentiment among manufacturers towards output growth eased to the weakest since February. Optimism was rooted in projected benefits of GST materializing over the next 12 months. However, some firms expressed concerns over negative GST effects.

Commenting on the Indian Manufacturing PMI survey data, Aashna Dodhia, Economist at HIS Markit and author of the report, said "India's manufacturing companies struggled somewhat as the recent recovery enjoyed by the sector lost impetus in October. Disappointingly, manufacturing production rose at the weakest pace in the current sequence of growth. Inflows of new orders stagnated as the negative effects arising from the implementation of GST continued to dampen demand levels. Furthermore, overseas demand for Indian goods dipped to the greatest extent since September 2013.

On the bright side, the labour market continued to improve, with manufacturers further increasing their staffing levels, and at a pace similar to September's 59-month high. Business confidence eased to the weakest since February as some firms expressed concerns over negative GST effects. However, those manufacturers that were optimistic forecasted benefits of GST materializing over the next 12 months."

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