Bengaluru: India's factory activity growth slowed in February from the previous month's eight-year high due to a modest weakening in demand and output, although overall conditions remained firm, a private survey showed on Monday.
The Nikkei Manufacturing Purchasing Managers' Index, compiled by IHS Markit, fell to 54.5 last month from January's 55.3, above a Reuters poll forecast of 52.8.
It has stayed above the 50-point threshold mark, which separates growth from contraction, for over two years.
"Factories in India continued to benefit from strong order flows in February, from both the domestic and international markets," Pollyanna De Lima, principal economist at IHS Markit, wrote in a release.
"The pick-up in demand meant that companies were able to further lift production and input buying at historically-elevated rates."
While the latest survey showed the new orders sub-index, a proxy for domestic demand, slipped to 57.5 in February, it remained above the long-term average since the index was introduced in March 2005.
That encouraged firms to maintain solid output.
However, foreign demand and optimism were weaker in February than in January on rising concerns the spread of coronavirus outside China would affect major Asian economies significantly.
That subdued mood pushed hiring activity to its lowest in three months.
"Alarm bells are ringing for Indian goods producers as the COVID-19 outbreak poses threats to exports and supply chains. Businesses became less confident about the year-ahead outlook for output, in turn restricting hiring activity," de Lima said.
On the price front, both input cost and output charge growth slowed last month, suggesting retail inflation may cool.
That would give policymakers some headroom to address key issues after the recent high inflation-low growth conundrum.
"Price data continued to highlight a lack of inflationary pressure in the sector. Only modest increases in input costs and output charges were recorded in February, a trend that has been a key theme of the manufacturing PMI survey for over a year," added de Lima.
Fuel demand growth rebound
India expects its refined products demand growth to rebound to 3.8% in the financial year beginning April, tracking improved economic growth, according to government estimates that were made in January before the coronavirus broke out.
India's economy expanded at its slowest pace in more than six years in the last three months of 2019, and analysts predict further deceleration as the global coronavirus outbreak stifles growth in Asia's third-largest economy.
Consumption of refined fuels, a proxy for oil demand, is expected to total 222.79 million tonnes in 2020/21, according to the initial estimates released on Monday by the Petroleum Planning and Analysis Cell of the federal oil ministry.
Fuel consumption in the world's third biggest oil importing nation is expected to slow to 1.3% this fiscal year ending March 2020, the lowest growth rate in six years, government estimates showed.
The projections for 2020/21 were finalised in January and do not factor in the likely impact of the coronavirus outbreak on the local industry and fuel demand in the country, a government official said.
Analysts, however, say that India may have to revise down its fuel demand growth projection for 2020/21.
"(The) Indian economy and oil demand are already facing headwinds. With corona impacting the regional oil demand, India will weather a slowdown as well. We expect oil demand to grow by 2.6% over April 2020 to March 2021," said Sri Paravaikkarasu, director for Asia oil at consultancy FGE.
India reported two more cases of coronavirus on Monday, taking the number of people who have tested positive in the country to five.
Diesel demand, accounting for about two-fifths of refined fuel consumption and directly linked to industrial activity, is estimated to rise 2.8% compared with the expected five-year low of 0.9% growth in 2019/20, the data showed.
Gasoline demand is expected to slow to 8.4% in 2020/21 from the projected 9% for this fiscal year, the data showed.
While gasoline is used by passenger cars, diesel is used by trucks and heavy vehicles for transporting goods and in industrial activities like mining and powering generators for industries.
India's vehicle sales are expected to stay under pressure due to rising cost of vehicle ownership and slower economic growth, the president of automobile lobby group the Society of Indian Automobile Manufacturers (SIAM) said last month.
Diesel demand is expected to remain subdued until the second half of 2020, when analysts expect various policy measures aimed at stimulating industrial activity to kick in and soak up excess fuel.
