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India October factory growth at decade high as demand bounces back

India’s factory activity hit a second consecutive month of record performance improvement in October with output expanding to the greatest extent in 13 years amid robust sales growth, a private survey showed on Monday.

The IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) rose to 58.9 last month from 56.8 in September on the back of ongoing relaxations on Covid-19 restrictions, better market conditions and improved demand, according to the release.

A reading above 50 indicates expansion, while below that signals contraction.

“In response to strong sales gains and softer containment measures related to the COVID-19 disease, firms lifted production at the strongest pace recorded since late-2007,” it said.

The growth was led by a strong output expansion of intermediate goods along with robust growth in the consumption and investment goods category as well, it said.

However, while firms purchased additional inputs for production, payroll numbers continued to decline for the seventh consecutive month on account of government workplace guidelines related to Covid-19 precautionary measures, it added

"Companies were convinced that the resurgence in sales will be sustained in coming months, as indicated by a strong upturn in input buying amid restocking effort,” said Pollyanna De Lima, economics associate director at IHS Markit.

The latest figures indicated India’s recovery was gradually becoming entrenched, according to a Barclays note. “Solid expansion in manufacturing activity in October will add to the optimism that India's economic recovery is on track and is slowly becoming entrenched,” Rahul Bajoria, Barclays chief India economist said.

Despite higher input costs over last month, inflationary pressures in October remained subdued as seen by a modest increase in input costs and only marginal rise in selling prices even as sales growth showed the strongest upturn since mid-2008, according to IHS Markit.

Additionally, quantities of purchases also increased at the quickest pace in just under nine years along with new export orders posting their most pronounced growth in close to six years, it added.

Employment down, sentiments up
The pace of decline in employment on account of compliance with government guidelines was reducing with October recording the weakest fall of the seven-month trend.

“There was disappointing news on the employment front though, with October seeing another reduction in payroll numbers. Survey participants that noted job shedding mentioned having observed containment measures to halt the spread of the coronavirus disease 2019,” De Lima said.

With rising sales and falling employment, firms saw an increase in outstanding business, the release said, but backlogs rose at their weakest pace in six months in October.

Hopes of an end to Covid-19 cases and reopening of other sectors in the economy underpinned positive sentiment towards the year-ahead outlook for production with confidence levels touching a 50-month high, IHS Markit said.

“Confidence towards the year-ahead outlook for production improved as firms hoped that fewer COVID-19 cases and the reopening of other businesses could boost output growth,” De Lima said.

Other indicators have also been looking up with core sector contraction narrowing to 0.8% in September and goods and services tax (GST) collections crossing the Rs 1 lakh crore mark for the first time this fiscal in October. As of October 25, 50 million GST e-way bills were generated and are expected to grow 11% over September’s 57.4 million while railway freight loading for the month grew 15% annually to hit 108.16 million tonnes, or a 5% increase over September.

“We see signs that the Covid-19 caseload is peaking across large parts of India, and the economy appears on track to recover the lost ground,” Bajoria said, estimating a 6% contraction for FY21 on account of limited fiscal support.

Business resumption
The Nomura India Business Resumption Index (NIBRI) also saw another post-lockdown high of 84.4 for the week ended November 1, a pick up from 83.3 a week earlier, the brokerage said on Monday.

Improvements were mobility-driven as falling infection cases have led to an easing of restrictions, it said, citing the return of the Apple driving index to near pre-pandemic levels and continued improvements in retail and recreation mobility.

On the other hand, workplace mobility declined by 4.6 percentage points from a week earlier along with a further 2.3% contraction in power demand after a 4% fall in the week before.

Nomura remained skeptical of the uptick in various sectors outlasting the festive season and remained cautious of a potential reversal of the pandemic gains during November-December.

Source: ET