Factory production slowed again in August as the purchasing managers’ index (PMI) fell to 51.7 against 52.3 in July. Still it is the 13th successive month of expansion.

This index, better known as the Nikkei India Manufacturing Purchasing Managers’ Index, is based on the survey conducted among purchasing executives in over 400 companies. These companies are divided into 8 broad categories: Basic Metals, Chemicals & Plastics, Electrical & Optical, Food & Drink, Mechanical Engineering, Textiles & Clothing, Timber & Paper and Transport. Index over 50 shows expansion, while below 50 mean contraction. The index is prepared by IHS Markit and released along with a detailed report.

The latest data pointed to a modest improvement in manufacturing conditions compared to July. Output rose further in August, thereby extending the current period of expansion to 13 months. Strong underlying demand was the key factor behind the latest upturn, according to panellists.

Although solid, the rate of expansion eased for the second successive month. New orders placed at Indian manufacturers rose for the tenth month in succession. Wherever an increase was reported, firms commented on strong market demand.

Aashna Dodhia, Economist at IHS Markit, said that August data signalled a further loss of growth momentum across India’s manufacturing sector, reflecting slower gains in output and new orders. That PMI data suggested that external demand for Indian goods was also robust, with new export orders rising at the fastest pace since February.

“Following rises in domestic interest rates, manufacturing companies gained some breathing space as input cost inflation moderated to the weakest since May and further from June’s multiyear peak. That said, the rupee depreciation against the US dollar continued to place strong upward pressure on input prices,’’ she said.

Further, she mentioned that Indian manufacturers retained positive projections for output over the next 12 months, but the level of sentiment eased in August. There could be headwinds as oil prices are heading northwards, while there is monetary tightening while portfolio manufacturers are taking out money.

Meanwhile, job creation was similar to previous months. The report mentioned that in response to sustained period of expansion in output and new orders, firms were encouraged to raise their staffing levels during August.

On the price front, Indian manufacturing companies continued to face higher input costs during August. There were reports that currency weakness contributed to higher raw material costs. Although sharp, input cost inflation moderated to the weakest since May. As part of ongoing efforts to protect margins, Indian manufacturers raised their own selling prices for the 13th consecutive month in August. That said, the latest rise was marginal and the slowest since April.

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