India's manufacturing activity growth in September held steady compared with August, supported by a pick up in export orders and output, a survey of businesses in India showed on Monday, but an increase in inventories could hurt growth in the future.
The HSBC manufacturing purchasing managers' index (PMI), which gauges the business activity of India's factories but not its utilities, held steady at 52.8 in September from 52.8 in August, which was a nine-month low.
Still, the index has remained above 50, which divides growth and contraction, for more than three years.
Measures by the U.S. Federal Reserve and the European Central Bank to resuscitate their economies pushed foreign demand for Indian goods higher.
Economic activity in the manufacturing sector, held steady supported by faster output growth and rising export orders, said Leif Eskesen, an economist at HSBC. However, a rise in inventories may dampen output growth in coming months.
The export orders sub-index jumped to 53.8 last month from 49.2 in August, its biggest rise in almost two years and the first reading above 50 in three months.
However, the increase in inventories - stocks of purchases and finished goods - suggested factories may reduce output unless the buildup is cleared by faster incoming orders.
Manufacturing accounts for a significant share of India's gross domestic product, so a slowdown would not augur well for Asia's third-largest economy, already grappling with its weakest GDP growth in almost three years. The latest government data showed industrial output growth stalled in July from a year earlier.
Looking ahead, growth in the manufacturing sector is likely to remain subdued, although implementation of recently announced reforms will help facilitate a gradual recovery during the second half of the fiscal year, Eskesen said.
India's moribund government roared back to life last month, announcing long-awaited reforms as part of a package of measures aimed at reviving growth and staving off a ratings cut to junk status.
The government opened up India's supermarket sector to foreign chains and allowed more overseas investment in airlines and broadcasters in addition to increasing diesel prices - reducing its subsidy burden but likely adding to already worrying levels of inflation.
The PMI showed input prices rose at a faster pace than in August off the back of higher raw material and diesel prices, while output prices increased at a slower pace, adding to the Reserve Bank of India's dilemma of boosting growth while trying to control stubbornly high inflation.
India's manufacturing growth