India’s Manufacturing PMI Surges To The Highest In Over Eight Years

A gauge of activity across India's manufacturing sector jumped to highest level in over eight years in September as manufacturers saw a sharp pick-up in new orders.

The IHS Markit India Manufacturing Purchasing Managers' Index rose to 56.8 in September 2020, from 52 in August. This is second straight month of expansion and the highest reading since January 2012. It is also the third quickest surge in the survey's history. A reading over 50 indicates economic expansion.

The increase in new business inflows was the fastest since early 2012, IHS Markit said. Export orders expanded as well. “The upturn in total sales was supported by a renewed expansion in new export orders, the first since prior to the escalation of the Covid-19 outbreak.”

Despite strong growth of order book volumes, Indian goods producers signaled another reduction in payroll numbers. In many cases, this was attributed to efforts to observe social distancing guidelines.

With slower execution of orders, the backlog increased in September, the PMI data shows. Manufacturers stepped up purchase of inputs to meet the backlog and new orders. “This placed additional pressure on supply chains as evident by a further increase in delivery times,” the survey indicated.

Holdings of inputs increased for the first time in six months, but inventories of finished goods decreased at a sharp and accelerated rate as companies utilised stocks to follow through on their sales contracts.

On the price front, input costs rose a softer rate except in the case of a few materials such as aluminum and steel. “Output charges, meanwhile, broadly stabilised following five successive months of reduction.”

In the coming 12 months, almost one-third of manufacturers expect output growth, against 8% that foresee a contraction, resulting in the strongest degree of overall optimism in over four years. Upbeat projections reflected hopes of fewer coronavirus cases, projects in the pipeline and enquiries from new clients, according to the release.

The phased unlocking of the economy has provided impetus to economic activity, said Rahul Bajoria, chief India economist at Barclays. The PMI data implies that the economic recovery is becoming entrenched, he said.