Output rises at joint-slowest pace in one-and-a-half years: IHS Markit India Manufacturing PMI

IHS Markit India Manufacturing PMI was unchanged at 51.4 in September from August

The headline seasonally adjusted IHS Markit India Manufacturing PMI was at 51.4 in September, unchanged from August and thereby posting its joint-lowest reading since May 2018. The figure still showed an improvement in the health of the sector, although one that was historically subdued.

Looking at the second quarter of fiscal year 2019/20 as a whole, the PMI pointed to the joint-weakest quarterly performance since the same period in 2017. Consumer goods producers saw a strong improvement in operating conditions during the quarter, with a modest strengthening evident at intermediate goods makers and contraction in the capital goods segment.

Indian manufacturers were again hit by subdued demand conditions domestically and externally, which led them to limit production, lower inventories and reduce input buying. At the same time, business confidence sank to one of the lowest levels seen in over two-and-a-half years. Notably, input cost inflation moderated to one of the lowest rates seen in over a decade. Subsequently, there was only a marginal rise in selling prices.

Aggregate manufacturing production rose in September, but the pace of expansion was the joint-slowest since March 2018. Anecdotal evidence indicated that improved technology and new business gains at some firms boosted output, while other companies lowered production due to muted demand.

Although total sales rose further in September, the pace of increase was among the weakest seen in the current 23-month sequence of uninterrupted expansion. Growth was centred on the consumer goods sector, with declines registered in the other two monitored categories.

Concurrently, new export orders moved closer to stagnation, with September seeing only a fractional upturn in international sales that was the weakest in the current run of growth.

Bleak demand conditions, in turn, caused a second successive decline in quantities of purchases among Indian manufacturers. As a result, there were back-to-back falls in input stocks.

Holdings of finished products likewise contracted, which survey members attributed to weak production and the fulfilment of orders from inventories.

Indian manufacturers reported a marginal increase in outstanding business during September. This encouraged further job creation in the sector. The rise in employment was similar to the slight pace noted in the prior survey period.

Meanwhile, a lack of demand for raw materials and semi-finished items acted to curb inflation in September. The rate of increase in overall cost burdens was among the weakest seen in a decade. Similarly, a marginal rise in selling prices was recorded.

September data highlighted a dip in business sentiment among Indian goods producers. The degree of optimism was the second-lowest registered in over two-and-a-half years. Some firms expect a pick-up in demand and investment in marketing to lift output in the year ahead, while others were concerned about competitive pressures and tough market conditions.

Commenting on the latest survey results, Pollyanna de Lima, Principal Economist at IHS Markit, said: "We have seen the gradual slowdown in manufacturing sector conditions continue in the second quarter of fiscal year 2019/20, with the PMI average for the quarter at its joint-lowest since the same period in 2017. "In September alone, forward-looking indicators such as business confidence and quantities of purchases were down, suggesting that companies are bracing themselves for difficult times ahead. "That said, public policy stimulus could potentially help the sector gain growth momentum, such as another reduction in the benchmark interest rate in August and the recent announcement of cuts to corporate taxes. "In light of the weak results for economic growth and muted inflationary pressures signalled by the PMI data, we expect to see further monetary easing in the months ahead."

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