Covid continues to dent India's factory output in July: PMI (Lead)

Subdued demand conditions, on back of the Covid-19 pandemic, continued to dent India's manufacturing sector output in the month of July.

The latest reading of seasonally adjusted IHS Markit India Manufacturing PMI index showed that firms responded by cutting both staff numbers and purchasing activity.

"However, despite the ongoing negative impact of the coronavirus disease (Covid-19), sentiment towards future activity improved for the second month running," IHS Markit said in the PMI survey statement.

Consequently, the seasonally adjusted PMI reading fell to 46 in July from 47.2 in June, which "pointed to a marked deterioration in business conditions across the Indian manufacturing sector".

"The downturn was partially driven by a further contraction in output. Although far softer than recorded in April and May, the rate of reduction accelerated from June and was sharp overall. Anecdotal evidence indicated that firms pared back production in line with weaker demand conditions," the statement said.

"Subdued demand was evidenced by another marked decrease in new orders placed with manufacturers during July. Similar to the trend for output, the pace of decline accelerated from June, but remained slower than at the height of the current crisis."

As per the statement, weighing on aggregate demand was a further contraction in new export orders at the start of the third quarter.

Besides, the statement cited that survey participants commented that international clients were hesitant to place orders while the duration of the pandemic remained uncertain, but that said, the latest reduction in exports was the softest for four months.

Commenting on the latest survey results, Eliot Kerr, Economist at IHS Markit, said: "The survey results showed a re-acceleration of declines in the key indices of output and new orders, undermining the trend towards stabilisation seen over the past two months. Anecdotal evidence indicated that firms were struggling to obtain work, with some of their clients remaining in lockdown, suggesting that we won't see a pick-up in activity until infection rates are quelled and restrictions can be further removed."

"However, on a more positive note, firms remained optimistic, with confidence towards future activity continuing to strengthen during July."