Cost inflationary pressures ease to mildest since May 2013
Operating conditions in the Indian manufacturing sector improved for the eleventh month in succession in September, although the pace of growth weakened to the slowest since December 2013. This was matched by slowdowns in output and new order growth, while cost pressures eased during the latest survey period. Adjusted for seasonal factors, the headline HSBC India Purchasing Managers' Index (PMI) - a composite gauge designed to give a single - figure snapshot of manufacturing business conditions - dropped from 52.4 in August to 51.0 in September. The reading was indicative of a modest improvement in operating conditions. Overall, intermediate goods was the best performing among the three monitored sub-sectors.As a result of improvements in demand, output expanded for the eleventh consecutive month in September. However, the pace of growth slowed from
August and was moderate overall. By sub-sector, the strongest expansion occurred in the intermediate goods category. September data confirmed reports of stronger demand as new orders rose for the eleventh month running. That said, the rate of increase weakened to the joint-slowest in that sequence. Growth of new business was broad-based by sector, with the sharpest rise noted in capital goods.
Indian manufacturers saw new business from abroad grow at an accelerated pace in September. Panel members commented on strengthening demand from key export clients. Marked expansions in foreign orders were reported in the consumer and intermediate goods sub-sectors, while exports fell at producers of investment goods.
Meanwhile, purchasing activity rose in line with production and new orders, as the rate of expansion slowed to a four-month low in September. Buying activity grew across each of the surveyed categories during the month. Subsequently, input stocks increased fractionally in September. In contrast, Indian manufacturers reduced their post-production inventories, marking the end of a year-long period of accumulation. Workforce numbers remained broadly stable in September, as the vast majority of survey respondents signalled no change in staffing levels. Among the monitored sub-sectors, job losses in consumer and investment goods were offset by marginal job creation at intermediate goods companies.
Inflationary pressures from both inputs and outputs eased further in September. Input costs continued to rise at a solid pace, but the rate of cost inflation decelerated sharply from the prior month. Higher prices paid for metals, chemicals and energy led to the overall rise in raw material costs. Concurrently, selling prices were broadly unchanged in September, as the seasonally adjusted index posted only fractionally above the neutral 50.0 threshold.
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Comment Commenting on the India Manufacturing PMI survey, Frederic Neumann, Co-Head of Asian Economic Research at HSBC said: "Manufacturing activity continues to slow amid weaker output and new order flows. Responding to the slowdown, firms lowered purchases and trimmed inventories. On the positive side, the rate of cost inflation decelerated sharply and output prices were unchanged. The central bank is likely to look beyond the near term moderation and keep policy rates elevated so as to reign in entrenched inflation expectations. The RBI would rather see growth recover supported by supply side reforms than through monetary policy stimulus".
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