India’s factory activity expanded at its fastest pace in
almost two years in October, with a robust rise in new orders as well as
output, supporting the strong growth story of the Asia's third largest economy.
According to a Markit
Economics report, Nikkei India Manufacturing Purchasing Managers’ Index, a
gauge measuring activity in the manufacturing sector spiked up to 54.4 in
October, a 22-month high, from September's 52.1, marking the biggest monthly
jump in almost five years, with a reading above 50 signaling expansion.
The manufacturers attributed the latest rise in
production to solid growth of the new orders, which surged significantly in
October, pointing towards the strength in the underlying demand. While,
foreign orders continued to contribute to the upturn in the total new work, the
rate of growth in new businesses from overseas eased to a three-month low.
Meanwhile, the output increased for the tenth straight
month and at the quickest rate in nearly four years in October. The
output sub-index, which measures the overall production, was at 57.2 in
October, the highest since December 2012, and up sharply from 53.3 in
September, the report noted.
The survey
showed that consumer goods producers outperformed their intermediate and
investment goods counterparts, registering stronger rates of expansion for both
output and new orders. Despite the robust growth in new work, employment sub-index
was left unchanged. Meanwhile, buying levels grew at their strongest rate in 14
months, while stock levels increased at the fastest pace since July 2015.
Moving ahead, input costs grew at its fastest rate since
August 2014, part of which was passed on to the consumers by way of higher
selling prices. It is likely to continue on an upward trend.
This shows that risk of inflation is gathering steam yet again which had cooled
to a 13-month low in September due to moderating food prices.
The increase in the
inflation rate will also affect the prospects of any further easing from the
Reserve Bank of India (RBI), which earlier this month surprised markets by
cutting its benchmark repo rate by 25 basis points to 6.25 per cent. The next meeting of the Monetary Policy
Committee (MPC) is scheduled on December 6 and 7.
Latin Manharlal Group
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