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India's Manufacturing Output Expands for Second Straight Month
Oct 5, 2017

In September, for the second consecutive month, Indian manufacturing saw a burgeoning of activity. The Nikkei India Manufacturing Purchasing Managers' Index (PMI) stood at 51.2 in September and August, respectively. Manufacturing PMI stood at above 50 for the past two months.

From a production standpoint, a reading above 50 indicates expansion, and one below 50, contraction. In September, the reading was indicative of a modest improvement in manufacturing sector business conditions. However, it is still below the long-run trend of 54.1. In September, growth in the consumer and intermediate goods categories had offset a contraction in the investment goods sector.

India's economic growth slipped to a three-year low of 5.7% during April-June quarter. This was on the back of disruptions caused by GST rollout and slowdown in manufacturing activities. The corporate investment cycle is weighed down by excess capacity in the manufacturing sector. The capacity utilization, which had improved to 74.6% in the fourth quarter of 2016-17, has once again dipped to 71.2% in the June quarter, reflecting weak demand.

On the inflation front, however, the numbers remained benign. To create demand, companies continued to absorb most of the cost pressure in September. So, while this could hurt companies' margins, the inflation number is unlikely to exceed RBI's medium-term target of 4% anytime soon.

Data Source: Source: IHS Markit, Nikkei

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