India's factory growth accelerates in October, PMI shows

India's manufacturing growth gained momentum in October after decelerating for three months as demand improved significantly, helping in job creation and leading to a better business outlook, according to a business survey released on Monday.

The HSBC final India Manufacturing Purchasing Managers' Index, complied by S&P Global, rose to 57.5 in October from an eight-month low of 56.5 in September and was above a preliminary estimate of 57.4.

"India's headline manufacturing PMI picked up substantially in October as the economy's operating conditions continue to broadly improve," noted Pranjul Bhandari, chief India economist at HSBC.


"Rapidly expanding new orders and international sales reflect strong demand growth for India's manufacturing sector."

The output and new orders sub-indexes rose to three-month highs with a notable increase in demand.

International demand improved from a year-and-a-half low in September. A desire for Indian goods lead to orders from Asia, Europe, Latin America and the U.S.

Buoyant demand also boosted the outlook for the year ahead.

"Business confidence is also very high due to expectations of continued strong consumer demand, new product releases, and sales pending approval," added Bhandari.

To meet growing demand, firms took on many more workers than in September. Hiring increased for an eighth consecutive month.

That would probably bring some relief to the government, which has failed to create enough well paying jobs for those entering the workforce. Economists cautioned job creation will remain muted over the next 12 months, a Reuters poll published a week ago showed.

Inflationary pressures increased with both input and output prices rising faster. Input cost inflation was the highest in three months, elevated by higher material costs, wage bills and transportation fees.

Firms passed on the extra costs to their clients at a much quicker pace than in September.

India's inflation rose to a nine-month high of 5.49% in September, largely driven by higher food prices and close to the upper end of the Reserve Bank of India's (RBI) 2-6% target.

Despite that, a separate Reuters poll last week showed a slim majority of economists expected the RBI to cut interest rates in December, to 6.25% from 6.50% currently.