India’s manufacturing activity eases to an eight-month low in September

New Delhi: India’s manufacturing activity eased to an eight-month low in September as rates of expansion in factory production and sales receded, and international orders rose at the slowest pace in a year and a half, according to a private survey released on Tuesday.

The HSBC final India Manufacturing Purchasing Managers Index (PMI), compiled by S&P Global, stood at 56.5 in September, down from 57.5 in August, 58.1 in July, 58.3 in June, 57.5 in May, and 58.8 in April.

The August reading was slightly lower than the flash projection of 56.7 released last month. However, the index has remained above its long-term average and the 50-point mark – which separates contraction from expansion – for nearly three years. The index is based on responses to questionnaires sent to around 400 manufacturers.

"Despite this loss of growth momentum, net employment and quantities of purchases rose, while business confidence was broadly aligned with its long-run average," the survey said. "On the price front, there were moderate increases in input costs and selling charges," it added.

Softer increase in new export orders

The report said a factor constraining total sales growth during September was the softer increase in new export orders, with the rate of expansion remaining moderate and the least pronounced in a year and a half.

Concurrently, the survey said factories continued to produce goods at a robust pace that outpaced the long-run series average. Growth softened in the consumer and capital goods segments while steadying for intermediate goods makers, and the overall rate of expansion retreated to an eight-month low. Cost pressures ticked higher in September, with increased prices of chemicals, packaging, plastics and metals, it added.

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“Momentum in India’s manufacturing sector softened in September from very strong growth in the summer months," said Pranjul Bhandari, chief India economist at HSBC. "Output and new orders grew at a slower pace, and the deceleration in export demand growth was especially evident as the new export orders PMI was the lowest since March 2023," she added.

Bhandari said input prices rose at a faster rate in September, while factory gate price inflation eased, intensifying the compression on manufacturers’ margins. "Weaker profit growth might have an impact on companies’ hiring demand, as the pace of employment growth slowed for a third month," she added.

Improved demand projections

The Reserve Bank of India (RBI) has raised its FY25 GDP growth forecast from 7% to 7.2% owing to improved rural and urban demand and predictions of a normal monsoon.

The survey pointed out positive demand trends. Successful advertising and favourable client interest were the main determinants of sales growth in the qualitative part of the survey. "Factories continued to produce goods at a robust pace that outpaced the long-run series average," it said.

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"That said, with growth softening in the consumer and capital goods segments whilst steadying at intermediate goods makers, the overall rate of expansion retreated to an eight-month low," it added.

The RBI's Monetary Policy Committee kept the benchmark rate at 6.5% at its meeting in August, though experts expect the central bank to cut the repo rate in the coming months.

Retail inflation inched up to 3.65% in August from 3.6% in July, chiefly on account of stubborn food prices. Inflation has, however, stayed within two percentage points of the RBI’s medium-term target of 4%.

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"Around 23% of Indian manufacturers forecast output growth in the year ahead, while the remaining firms predict no change," the survey said. "Hence, the overall level of business confidence fell to its lowest since April 2023," it added.