Operating conditions improve for twelfth consecutive month: HSBC India Manufacturing PMI
Continuing the trend observed throughout the past year, business conditions in the Indian manufacturing sector improved in October 2014. Underpinning the latest overall improvement was accelerated growth of output and new orders. Meanwhile, input costs rose at the weakest pace in 17 months.Adjusted for seasonal influences, the headline HSBC India Purchasing Managers' IndexTM (PMITM) - a composite indicator designed to give a single-figure snapshot of manufacturing operating conditions - rebounded from September's nine-month low of 51.0 to 51.6 in October. The latest reading was consistent with a moderate improvement in business conditions during the month. Sector data highlighted intermediate goods as the best-performing of the three monitored sub-categories.
Amid reports of stronger demand, production at Indian manufacturers rose for the twelfth successive month in October. Moreover, the pace of output growth accelerated from the prior month and was solid overall. By sub-sector, the sharpest expansion was observed in intermediate goods.
New business also increased for the twelfth month in a row in October, with panel members attributing the latest expansion to new contract wins and general improvements in demand. Growth of new business was broad-based by sector, with the strongest rise recorded in intermediate goods.
Foreign orders received by Indian manufacturers rose in October, extending the current sequence of growth to 13 months. The rate of expansion accelerated to the most marked in four months and was robust overall. Surveyed firms generally commented on strengthening demand from key export clients.
According to survey respondents, stronger order books fuelled further expansions in purchasing activity and pre-production inventories in October. However, growth of input buying eased to the weakest since May during the month, while the rate of input stock accumulation remained marginal overall.
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Meanwhile, stocks of finished goods returned to growth in October, reversing the modest depletion reported in September. That said, the rate at which stock holdings increased was fractional overall.
Levels of employment in the Indian manufacturing sector were broadly stable for the second straight month in October. Fractional job shedding at producers of consumer and investment goods was offset by hiring in intermediate goods.
Finally, inflationary pressures from input costs and output charges remained historically muted in October. Higher prices paid for metals, plastics, paper and textiles & fabrics led to the sixty-seventh consecutive monthly rise in input costs; although the rate of cost inflation slowed to the weakest in 17 months. Similarly, despite accelerating since September, the pace of charge inflation was slight overall. Among the monitored sub-sectors, the only reduction in selling prices occurred in intermediate goods.
Commenting on the India Manufacturing PMI survey, Frederic Neumann, Co-Head of Asian Economic Research at HSBC said: "Manufacturing activity picked up modestly amid stronger output and new order flows, particularly from overseas clients. However, firms continued to trim purchases and refrained from aggressive inventory accumulation. Price pressures declined with input prices easing further. Meanwhile, the improvement in growth allowed firms to raise margins by increasing output prices slightly. This trend could strengthen with growth, which is why the RBI will remain cautious about relaxing its grip at this juncture."
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