India’s factory output grew for the second consecutive month in September, indicating a modest improvement in the manufacturing sector business conditions and a strong underlying demand. The Nikkei India Manufacturing Purchasing Managers’ Index, compiled by Nikkei and research firm Markit, remained unchanged at 51.2, according to a press release. A reading below 50 indicates contraction and a number above it signals expansion.

The sector continues to rebound after a lull in July, suggesting a gradual recovery from the initial hiccups triggered by the Goods and Services Tax. While September growth remained at modest levels, post-production inventories declined at a record pace, said the release. “Growth in the consumer and intermediate goods categories offset a contraction in the investment goods sector,” it said.

Order book volume grew for the second consecutive month, prompting producers to ramp up hiring. The rate of employment rose at its fastest pace in nearly five years, said the statement. However, rupee overvaluation might put pressure on demand for Indian goods in the exports market in the near future, said Aashna Dodhia, economist at IHS Markit and author of the report. Even though inflation in September remained weaker than the long-run trend, IHS Markit downgraded its real gross domestic product growth forecast to 6.8 percent for the financial year, mirroring the lingering effects of recent policy jolts and record decline in GDP in August.

Other Key Highlights

• GST introduction and greater steel and petroleum prices caused cost pressures to intensify.
• Destocking continued with both pre- and post-production inventories declining.
• New export orders decreased, ending a three-month demand expansion in international markets.
• Growth in consumer and intermediate goods category offset the contraction in investment goods sector.

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