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Factory activity slows a tad, but stays in expansion mode

India’s factory activity eased slightly in September from the preceding month but remained firmly in expansion zone, riding the peak business optimism since February 2015, a private survey showed on Monday. The S&P Global India Manufacturing Purchasing Managers’ Index fell to 55.1 in September from 56.2 in August.

A reading above 50 on the index indicates expansion while below that shows contraction in activity.

“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 S&P Global Market Intelligence economics associate director Pollyanna De Lima.

Data released last week showed strong car sales in September, robust GST collections and high fuel demand, all pointing to a strong economy despite strong headwinds of high inflation, rising interest rates and weakening currency.

New export orders rose for the sixth successive month, and at the fastest pace since May 2022, even as the uptick in input costs dipped to the slowest rate in almost two years thanks to subdued global demand for raw materials and recession risks.

The overall level of positive sentiment seen in September was the best in over seven-and-a-half years, the survey showed.

“Expansion in India’s activity indices continues to outpace regional peers, driven by resilience in domestic demand,” said Rahul Bajoria of Barclays, adding that falling input costs imply improving margins.

Anecdotal evidence pointed to greater demand from domestic and global clients, according to the survey.

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

Ongoing increases in new work and efforts to lift production boosted job creation in September, which rose at the quickest pace in three months, ‘albeit one that was slight overall’, as per the PMI survey.

While all broad manufacturing segments reported expansion, the capital goods sector saw strongest growth in new orders, global sales and output.

To accommodate higher sales and greater output needs, firms also acquired more inputs after firms dug deep into their inventories in September, S&P Global said.

The upturn in input buying was aided by cooling price pressures. Purchasing costs rose at the slowest pace in just under two years, while output charge inflation receded to a seven-month low.

Weaker currency and its spill overs remained key risks.

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