October manufacturing activity at two-year low, PMI at 50.6

India’s manufacturing activity hit a two-year low in October as new orders and output rose at a slower pace, making the business confidence slip to its lowest level in over two-and-a-half years, a private survey showed on Friday.

The IHS Markit India Manufacturing PMI fell to a two-year low of 50.6 in October, from 51.4 in September highlighting only a marginal improvement in the health of the manufacturing industry.

The index remaining above 50 indicates growth while a score below that mark means contraction.


“PMI data for October showed a continuation of manufacturing sector weakness in India, with sales growth softening to the slowest in two years,” said Pollyanna de Lima, principal economist at IHS Markit.

"Weakening demand had a domino effect in the manufacturing industry, knocking down rates of increase in production, employment and business sentiment,” de Lima added.

The survey report showed that growth was restored in capital goods and softened in the consumer goods category, while a quicker contraction was registered at intermediate goods makers.

The PMI is based on a survey conducted among purchasing executives in over 400 companies, which are divided into eight broad categories—basic metals, chemicals & plastics, electrical & optical, food & drink, mechanical engineering, textiles & clothing, timber & paper and transport.

Challenging market conditions, coupled with delayed client payment, dampened business confidence in October.
Manufacturers were at their least upbeat towards the 12-month outlook for production since February 2017, according to the report.

Official data released on Thursday showed India’s core sector output contracting 5.2% in September, posting its worst performance in 14 years. Core sector has a 40% weightage in the broader index of industrial production, which may now slump further from a 1.1% contraction in August, its worst performance in over seven years.

While the business confidence was gloomy, de Lima said that the impending lowering of commercial lending rates could potentially revive private consumption and help to shift growth higher as the year ends. The Reserve Bank of India, which has already cut the key repo rate by 1.35 percentage points in the current year, is expected to reduce rates again in December.

Goods producers may then be encouraged to resume investments and create jobs, which combined with cuts to corporate taxes could bode well for the outlook, as per the report.