New Delhi, Oct 1 (KNN) India's factory activity during September expanded at the slowest pace since December 2013 as growth in new orders slowed and the overall output was slow, according to a survey.

The HSBC Manufacturing Purchasing Managers' Index (PMI), compiled by Markit, fell to 51.0 in September from 52.4 in August but sustained above the 50 mark for the eleventh month.

A reading above 50 separates growth from contraction.

The new orders sub-index fell to 51.3 from 54.5, the steepest fall in 18 months, underscoring weak demand, while output in factories fell to a four-month low.

“Adjusted for seasonal factors, the headline HSBC India PMI – a composite gauge designed to give a single-figure snapshot of manufacturing business conditions – dropped from 52.4 in August to 51.0 in September. The reading was indicative of a modest improvement in operating conditions. Overall, intermediate goods was the best performing among the three monitored sub-sectors,” the survey said.

As a result of improvements in demand, output expanded for the eleventh consecutive month in September. However, the pace of growth slowed from August and was moderate overall. By sub-sector, the strongest expansion occurred in the intermediate goods category.

September data confirmed reports of stronger demand as new orders rose for the eleventh month running. That said, the rate of increase weakened to the joint-slowest in that sequence. Growth of new business was broad-based by sector, with the sharpest rise noted in capital goods, the survey added.

"Manufacturing activity continues to slow amid weaker output and new order flows. Responding to the slowdown, firms lowered purchases and trimmed inventories," HSBC Co-Head of Asian Economic Research Frederic Neumann said.

Indian manufacturers, however, witnessed significant improvement in export orders in September.

Meanwhile, workforce numbers in India remained broadly unchanged in September, as the vast majority of survey respondents signalled no change in staffing levels. Among the monitored sub-sectors, job losses in consumer and investment goods were offset by marginal job creation at intermediate goods companies.

On price rise, HSBC said that the rate of cost inflation decelerated sharply while output prices were unchanged. Inflationary pressures from both inputs and outputs eased further in September. Input costs continued to rise at a solid pace, but the rate of cost inflation decelerated sharply from the prior month. Higher prices paid for metals, chemicals and energy led to the overall rise in raw material costs. Concurrently, selling prices were broadly unchanged in September, as the seasonally adjusted index posted only fractionally above the neutral 50.0 threshold.

"The central bank is likely to look beyond the near term moderation and keep policy rates elevated so as to reign in entrenched inflation expectations," Neumann said.

"The RBI would rather see growth recover supported by supply side reforms than through monetary policy stimulus," Neumann added. (KNN/SD)