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Manufacturing improves, but Nikkei India PMI hits a low point

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Business conditions across the Indian manufacturing economy improved further in October, but purchasing manager index showed weakness, research commissioned by The Nikkei newspaper showed.

October saw the weakest rise in output in current 24-month sequence of expansion and new orders increased at a slower pace. The Nikkei India PMI hit a 22-month low in October.

“The latest PMI dataset highlighted weaker growth of both output and new orders. Encouragingly, companies added to their worforces for the first time since January and continued to increase buying levels,” Nikkei India said.

On the price front, both input costs and factory gate charges rose, albeit at rates that were below their respective long- run averages.

“Posting a 22-month low of 50.7 in October (September: 51.2), the seasonally adjusted Nikkei TM India Manufacturing Purchasing Managers’ Index TM (PMI) – a composite single-figure indicator of manufacturing performance – was indicative of a weaker improvement in business conditions across the sector.

“Nonetheless, the PMI has recorded above the crucial 50.0 threshold in each month since November 2013. Output growth eased in October on the back of a slower increase in new orders.”

Rates of expansion in both production and order books were the weakest in their current 24-month sequences of growth, with panelists reporting challenging economic conditions and a reluctance among clients to commit to new projects.

“Growth of manufacturing production across India eased for the third month running in October to the weakest in the current 24-month sequence of expansion. Although companies indicated that the latest rise in output reflected sustained increases in new orders, there were reports of challenging economic conditions. Output grew at modest rates in both the consumer and intermediate goods sectors, while production at capital goods firms decreased for the first time since September 2014,” the report said.

Sector data indicated that consumer goods was the best performing category in October, while improving operating conditions were also seen in the intermediate goods sub-sector.

Conversely, capital goods firms saw business conditions deteriorate in the latest month as output and new orders declined for the first time since September 2014 and August 2014 respectively.

New business from abroad placed with Indian manufacturers rose for the twenty-fifth straight month in October. However, growth was little-changed from the marginal pace seen in September.

Despite the slowdown in new order growth, manufacturers hired additional workers in October. Employment rose for the first time since January, although only marginally.

Those companies reporting higher staffing levels commented on expectations of a pick up in demand in coming months.

October saw inflationary pressures return to India’s manufacturing economy. Average purchase costs rose, amid reports of higher metal, paper and food prices.

“The rate of increase was, however, only slight in the context of historical data. Part of the additional cost burden was passed on to clients as tariffs were raised. Nonetheless, the rate of charge inflation was marginal overall. Buying levels rose for the twenty-fourth consecutive month in October, although at the weakest pace since December 2013. Meanwhile, stocks of purchases were broadly unchanged whereas holdings of finished goods fell further,” it said.

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