Expansion of mfg driven by sharp output & order growth.

Mumbai, 3 OCTOBER 2006.Today sees the seventh public release of data for the new ABN AMRO India Purchasing Managers' Index(PMI), a comprehensive and early indicator of trends in the Indian manufacturing sector.

In addition to the headline ABN AMRO PMI "� a composite indicator designed to provide a single-figure snap shot of the health of the manufacturing sector "� the survey also tracks changes in output, new orders, employment, inventories, prices and supplier delivery times. Index readings above 50.0 signal expansion from the previous month, readings below 50.0 contraction.

September data signalled a further marked improvement of operating conditions in the Indian manufacturing sector. The seasonally adjusted ABN AMRO India Purchasing Managers' IndexTM (PMITM) posted 59.0 in September, up from 57.9 in the previous month, to signal the sharpest rate of expansion since data were first collected in April 2005.

Commenting on the latest survey findings, Abheek Barua, Chief Economist, India, ABN AMRO Bank N.V, said:"High input cost inflation suggests that downward pressures on company margins are still alive. However the strong growth in sales volume reflected in the PMI output index should compensate for this."

Indian manufacturers indicated a further marked expansion of production levels at their plants in September. Anecdotal evidence suggested that strong underlying demand had supported a sharp expansion of incoming new business and subsequently production. Levels of incoming new business rose at the sharpest pace for fourteen months. Panellists also indicated a robust rise in new export business, with the latest growth above the survey's average.

Increased workloads contributed to a fifth consecutive monthly expansion of outstanding business. Some panel members reported that rising backlogs of work encouraged a further solid increase in employment levels at their plants. Indian manufacturers continued to indicate higher levels of purchasing activity in September. The rate of input buying growth accelerated since the previous month and was the most marked in the survey history.

The latest marked expansion of input buying led to a robust rise in pre-production stocks in the Indian manufacturing sector. Inventories of finished goods also increased in the latest survey period. High levels of demand for inputs placed further pressure on suppliers in September and contributed to a marginal deterioration of vendor performance. Input cost pressures persisted, with the rate of inflation rising to a seventeen-month high in September. A robust increase in factory gate prices signalled that firms were able to pass on a proportion of their higher purchasing costs to clients.

Key findings for September 2006: "� PMI records 59.0; up from 57.9 in August and its highest level in the survey history "� Sharp and accelerated rises in output and new orders "� Input cost inflation was most marked for seventeen months www.ntc-research.com

Notes on data

The ABN AMRO India Manufacturing PMI is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 500 industrial companies. The panel is stratified geographically and by National Industry Classification (NIC) group, based on the regional, and industry contribution to manufacturing output. Survey responses reflect the change, if any, in the current month compared to the previous month based on data collected mid-month. For each of the indicators the 'Report' shows the percentage reporting each response, the net difference between the number of higher/better responses and lower/worse responses, and the 'diffusion' index. This index is the sum of the positive responses plus a half of those responding 'the same'.

Diffusion indexes have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change. An index reading above 50.0 indicates an overall increase in that variable, below 50.0 an overall decrease. All data are seasonally adjusted.

The Purchasing Managers' Index (PMI) is a composite index based on five of the individual indexes with the following weights derived by the Institute of Supply Management (ISM) in its survey in the US: New Orders - 0.3, Output - 0.25, Employment- 0.2, Suppliers' Delivery Times - 0.15, Stock of Items Purchased - 0.1, with the Delivery Times index inverted so that it moves in a comparable direction. The PMI is designed to show a convenient single-figure summary of the health of the manufacturing sector.