January factory activity hits 3-month high, job cuts subside

India’s factory activity expanded at its strongest pace in three months in January, fuelled by a continued recovery in demand and output, according to a private survey which also showed firms cut jobs at the slowest pace in 10 months.

The Nikkei Manufacturing Purchasing Managers’ Index , compiled by IHS Markit, rose to 57.7 in January from December’s 56.4, above the 50-level separating growth from contraction for the sixth straight month.

Sub indexes tracking new orders and output rose to their highest since October, indicating strong growth in demand.

“Factories continued to ramp-up production at an above-trend pace, and the sustained upturn in new work intakes suggests that there is room for capacity expansion in the near-term,” noted Pollyanna De Lima, economics associate director at IHS Markit.

That chimes with a Reuters poll, published last week, which predicted Asia’s third-largest economy would recover at a quicker pace than previously thought on increasing hopes of further fiscal expansion and a successful coronavirus vaccine rollout.

Still, firms reduced headcount for the tenth month in a row, although the rate of job cuts was the weakest in the current 10-month contraction.

Meanwhile, an increase in input prices at their fastest pace since Sept. 2018 forced firms to raise output prices at the strongest rate in more than a year, raising the chance of overall inflation remaining above the Reserve Bank of India’s medium-term target of 4%.

Despite higher inflation, the RBI is not expected to change its accommodative stance anytime soon, the Reuters poll found.

Optimism about the coming year improved last month.

“Companies cheered the roll-out of COVID-19 vaccines and became more optimistic towards growth prospects, a position that is supportive of investment and job creation as businesses attempt to rebuild their inventories of finished goods and meet demand needs,” added De Lima.