In an encouraging development, business conditions in the Indian manufacturing sector continued to grow at a modest pace in October as robust demand, both domestically as well as internationally, led manufacturers to raise prices of their products. The HSBC India Purchasing Managers' Index (PMI), a headline index designed to measure the overall health of the manufacturing sector, rebounded from September's nine-month low of 51.0 to 51.6 in October. The latest reading was consistent with a moderate improvement in business conditions during the month as a figure above 50 indicates that the sector is expanding, while a figure below that level means contraction.
Notably, production at Indian manufacturers rose for the twelfth successive month in October. Moreover, the pace of output growth accelerated from the prior month and was solid overall. Indicative of strong demand, the new orders sub-index rose to 53.0 from September's 51.3 on robust overseas demand that helped push output higher and prompted manufacturers to add jobs for the first time since June. In addition, export orders received by Indian manufacturers rose in October, extending the current sequence of growth to 13 months. The rate of expansion accelerated to the most, marked in four months and was robust overall. Growth of new business was broad-based by sector, with the strongest rise recorded in intermediate goods.
Further, the improvement in activity allowed companies to increase prices charged slightly, even as the cost of raw materials rose at their slowest pace in 17 months. However, these companies refrained from aggressive inventory accumulation. With this, HSBC expects the trend of output price hike to strengthen with growth, which in turn may prompt the Reserve Bank of India (RBI) to keep monetary policy restrictive in the near term. In the September policy review, Reserve Bank Governor Raghuram Rajan kept all key rates unchanged citing continued risks to inflation and difficult external situation, especially on the geopolitical front.