India’s factory activity growth slows to 3-month-low in August

India's manufacturing activity growth slowed to a three-month low in August as manufacturers signalled a "substantial yet softer" increase in new business and production, according to the latest Manufacturing PMI report released by HBBC India. “Competitive pressures and inflation concerns hampered business confidence in August. Panellists were at their least optimistic since April 2023,” says the report.

The seasonally adjusted HSBC India PMI, complied by ratings agency S&P Global, stood at 57.5 in August, below July's 58.1 reading but above its long-run average of 54, signalling a substantial improvement in operating conditions.

"Business confidence retreated, but firms scaled up buying levels in a bid to safeguard against input shortages. The latest upturn in pre-production inventories was one of the strongest seen in 19-and-a-half years of data collection," says the report.

One factor that supported the rise in purchasing activity was a moderation in cost pressures, it says, adding the rate of input price inflation softened to the slowest in five months.

"New orders and output also mirrored the headline trend, with some panellists citing fierce competition as a reason for the slowdown. Nevertheless, all three indicators remain well above their historical averages. On a positive note, the rise in input costs slowed sharply. Manufacturers increased their raw material buying activity in order to build safety stocks. In line with input costs, the pace of output price inflation also decelerated, but the deceleration was to a much smaller extent, thereby increasing margins for manufacturers. Business outlook for the year ahead moderated slightly in August, driven by competitive pressures and inflation concerns,” says Pranjul Bhandari, Chief India Economist at HSBC.

The report says new business rose sharply midway through the second fiscal quarter, but the pace of expansion eased to a seven-month low. Panel members attributed the increase to advertising, brand recognition and healthy demand trends. Competitive conditions reportedly dampened growth.

New export orders likewise increased at the “weakest pace” since the start of the 2024 calendar year, it adds. "Yet, one in ten firms noted an improvement in international sales, which they associated with stronger demand from Asia, Africa, Europe and the US”.

Although output continued to rise at a historically sharp pace, the rate of expansion moderated to the slowest since January. On the one hand, some panellists indicated that the report says greater sales volumes and investment in technology-supported production. On the other hand, a few companies suggested that fierce competition and shifts in consumer preferences negatively impacted output at their units.

In August, goods producers benefited from a moderation in cost pressures. Purchasing prices still rose, but did so to the weakest degree in five months. Firms that observed an increase remarked on greater leather, mineral and rubber costs. With input cost inflation receding, goods producers sought to rebuild safety stocks by purchasing additional raw materials and semi-finished goods.