India factory growth cools to 3-month low in September: PMI

India's factory growth dipped to a three-month low in September but output still remained solid despite global headwinds, a private survey showed. The Manufacturing Purchasing Managers' Index, compiled by S&P Global, fell to 55.1 in September from 56.2 in August, lower than 55.8 predicted by economists in a Reuters poll, but the pace of growth was still solid. 

It was the 15th straight month the figure was above the 50-mark separating growth from contraction. 

“The latest set of PMI data show us that the Indian manufacturing industry remains in good shape, despite considerable global headwinds and recession fears elsewhere," said Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence. 

“There were softer, but substantial, increases in new orders and production in September, with some leading indicators suggesting that output looks set to expand further at least in the short-term as firms seek to fulfil sales contracts and replenish stocks,” she said. 

Businesses also benefited from a notable moderation in price pressures, according to the survey. 

“Input costs rose at the slowest rate in almost two years as suppliers' stocks improved in line with subdued global demand for raw materials and recession risks,” she added. 

The survey pointed out that Indian businesses become more confident in the outlook as inflation worries were tamed. The overall level of positive sentiment seen in September was the best in over seven-and-a-half years, according to the survey. 

That said, "currency risks and the impact of a weaker rupee on inflation and interest rates could derail optimism during October," the economist said. 

Job Creation

The PMI survey said that new orders, international sales and output increased in each of the three broad areas of the Indian manufacturing industry with strongest growth rates signalled by capital goods makers. 

“To accommodate higher sales and greater output needs, firms hired extra workers and acquired more inputs. Ongoing increases in new work and efforts to lift production boosted job creation in September. Employment rose at the quickest pace in three months, albeit one that was slight overall,” the survey said. 

“Despite the uptick in headcounts, companies noted a further increase in outstanding business volumes at the end of the second fiscal quarter. That said, backlogs rose at a slight rate that was weaker than in August. To fulfil sales requirements, Indian manufacturers dug deeper into their inventories in September. Stocks of finished goods fell at the fastest pace since February. Sustained input buying growth supported firms in their efforts to lift pre-production stocks in September. The rate of inventory accumulation was solid and quickened from August.”