Manufacturing sector growth at 22-month high in Oct: PMI

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SME Times News Bureau | 02 Nov, 2016
Indian manufacturing activity growth touched a 22-month high in October on the back of a rise in output as well as sharp increase in new orders, a key macro-economic data showed on Tuesday.

After falling to 52.1 in September, the Nikkei India manufacturing Purchasing Managers' Index (PMI) rose to a 22-month high at 54.4 in October, reflecting a significant increase in purchasing activity.

An index reading of above 50 indicates an overall increase in economic activity, and below 50 an overall decrease.

"October data provide positive news for India's economy, as manufacturing output and new orders expanded at the fastest rates in 46 and 22 months, respectively," Pollyanna De Lima, economist at IHS Markit and author of the report, said in a statement here.

The latest reading in Indian manufacturing PMI data for October was indicative of a robust improvement in manufacturing business conditions that was in line with the long-run series average, the statement said.

"The sector looks to be building on the foundation of the implied pick-up in growth in the previous quarter. Supporting this was the Reserve Bank of India's monetary policy committee announcement of a further 25 basis point reduction in its policy rate to 6.25 per cent," De Lima said.

Consumer goods producers outperformed their intermediate and investment goods counterparts, registering stronger rates of expansion for both output and new orders.

Output increased for the tenth straight month in October, and at the quickest rate in nearly four years.

According to the PMI survey respondents, the latest rise in production was due to strong growth of new orders with the amount of new work received by manufacturers growing markedly during October.

"Although the consumer goods sector again outperformed its intermediate and investment goods peers, all three sectors reported strong and accelerated growth in October. The domestic market was the prime source of new business gains, but let's not forget that there is also a robust export component in these positive numbers," De Lima said.

However, the extended easing cycle brought upside risks to inflation, with manufacturers seeing purchase costs rising at the quickest pace since August 2014. Survey participants reported higher prices across a wide range of goods, but particularly highlighted steel, plastic and petrol.

Part of the increase in cost burdens was passed on to consumers by way of higher selling prices, which is likely to continue on an upward trend as we head towards the year end, De Lima added.

Companies also sought to offset the effects of marked input cost inflation by purchasing and storing a greater level of pre-production items.

Buying levels grew at their strongest rate in 14 months, while stock levels increased at the fastest pace since July 2015.