India’s factory activity hits 3-month high

India's factory growth accelerated at the fastest pace in three months in August, driven by strong growth in new orders and output, according to a private survey that however also showed job creation was at a four-month low.

That is good news for Asia's third-largest economy, which grew 7.8 percent in April-June, slightly above a Reuters forecast of 7.7 percent, led by robust demand, and was expected to remain a bright spot in the global economy.

The Manufacturing Purchasing Managers' Index, compiled by S&P Global, jumped to 58.6 last month from 57.7 in July, the highest since May and confounding a Reuters poll expectation for a drop to 57.5.

This marked a sustained expansion, with 26 months above the 50-mark separating growth from contraction, the longest stretch since March 2020 when pandemic-induced lockdowns were imposed.

Asia's third-largest economy grew 7.8 percent in April-June led by robust demand.

"The PMI results for India painted a vibrant picture of the nation's manufacturing landscape in August. Robust and accelerated increases in new orders and production suggest... strong contribution to second quarter (fiscal) economic growth," noted Pollyanna De Lima, economics associate director at S&P Global.

"Companies' strategic focus towards a global orientation were evident via a sharp and quicker expansion in international sales. Export-centric tactics should help ensure that production remains on an upward path in the coming months."

New orders and output, indicators of demand strength, expanded at the fastest pace since January 2021 and October 2020, respectively. Export orders accelerated to the fastest rate in 10 months.

But that did not translate into faster employment generation. Job creation, while remaining positive for the fifth straight month, slowed to the lowest level since April.

Business confidence for the next 12 months slipped to a three-month low due to inflation concerns.

India's annual retail inflation rose to a 15-month high in July and was expected to stay above the Reserve Bank of India's target range of 2 percent-6 percent at least until October, a Reuters poll showed.

Input costs quickened at the fastest pace in a year in August. However, not all of these costs were passed on to clients, as output prices rose at their weakest rate in four months.

"The presence of stronger cost inflationary pressures serves as a reminder of the challenges inherent in managing growth ... the need to maintain competitiveness helped restricted charge inflation," De Lima added.