Factory activity down a tad in February

Manufacturing activity remained in the expansionary territory in February, but a slowdown in international sales pulled down the growth a tad.

The seasonally adjusted Purchasing Managers Index (PMI) stood at 55.3 in February - a four-month low - marginally lower than 55.4 in January.

"India's manufacturing industry sustained robust growth of output and new orders halfway through the final fiscal quarter, albeit with a notable slowdown in the rate of international sales expansion," S&P Global Market Intelligence that conducted the survey said in a release on Wednesday.

The value above 50 in February marked the twentieth consecutive month of expansion in manufacturing activity.

"Growth momentum in India's manufacturing industry was maintained in February, with new orders and output increasing at similar rates to January," said Pollyanna De Lima, economics associate director at S&P Global Market Intelligence.

The upturn was domestically driven, as Lima highlighted that "international sales rose at a marginal pace that was the weakest in almost a year".

"Today's print continues to show that after having bucked the export weakness trend last year, slowing global demand is finally being felt by Indian manufacturers," said Rahul Bajoria, MD & head of EM Asia (ex-China) economics at Barclays.

Bajoria said the export orders index fell to 50.5 in February (Jan: 51.2), albeit still in expansion. "... but we expect it to fall into contraction in the near term," he said.

While the strong domestic demand bodes well for the economy, it had little impact on the jobs. There was only a marginal improvement in jobs owing to a lack of pressure on operating capacity.

"Suppliers also appeared to have ample capacity to accommodate rising input demand, shown by a stabilisation in delivery times," De Lima added.

There is worrying news on the inflation front as input costs for the manufacturing industry rose.

Input cost inflation accelerated to a four-month high, with firms mentioning higher prices for electronic components, energy, foodstuff, metals and textiles.

"After slipping to a 26-month low last November, input cost inflation surged in every month since," the survey report said, adding that the latest rise was, however, subdued historically and among the weakest in around two years.

The survey showed some reluctance among manufacturers to pass on cost increases to clients, with output charge inflation easing since January, De Lima noted.

Meanwhile, business confidence improved in February, with firms expecting demand strength, new product releases and investments to bode well for growth prospects.