India’s manufacturing sector sees softer rise in August output: HSBC

India’s manufacturing sector experienced a softer rise in output, while services firms saw a slightly quicker rise in business activity, according to HSBC Flash PMI survey.

“Although new order growth for the manufacturing sector slowed to the weakest since February, the pace of expansion remained sharp, indicating continued strong demand and favourable market conditions,” says Pranjul Bhandari, chief India economist at HSBC.

Output price inflation in the manufacturing sector rose to an 11-year high, despite a slight slowdown in input prices, suggesting that manufacturers were able to pass on higher prices to customers, Bhandari adds.

There were signs of capacity pressures across the private sector, as evidenced by a further increase in backlogs of work, the survey notes. “However, manufacturing firms reported the first decline in outstanding business volumes for the first time in eleven months, while service providers indicated another monthly rise. Overall, firms remain optimistic, although the level of business confidence moderated due to concerns over inflation and competition,” says Bhandari.

August data indicated a thirty-seventh consecutive monthly rise in private sector output across India, with the rate of expansion remaining substantial by historical standards.

The headline HSBC Flash India Composite Output Index – a seasonally adjusted index that measures the month-on-month change in the combined output of India's manufacturing and service sectors – stood at 60.5 in August, little changed from 60.7 in July and pointing to a sharp rate of expansion that was above its long-run trend level (54.6).

The HSBC Flash India Manufacturing PMI – a single-figure snapshot of factory business conditions calculated from measures of new orders, output, employment, supplier delivery times and stocks of purchases – slipped from 58.1 in July to a three-month low of 57.9 in August. The latest reading was nevertheless above the historical average (54.0) and signalled a strong improvement in the health of the sector.

Private sector companies in India experienced another increase in new orders midway through the second fiscal quarter, the survey shows. Despite slowing to the weakest since May, the pace of expansion was sharp, HSBC says, adding that rates of growth were broadly similar at goods producers and service providers.

“When it came to international sales, services firm saw a stronger upturn than their manufacturing counterparts, although rates of increase softened in each case. At the composite level, new export orders rose at a pace that was the weakest since April, though nevertheless among the quickest since the series started a decade ago,” the survey notes.

Companies operating across India's private sector signalled a further increase in cost burdens during August, the survey says. According to panellists, building maintenance, food, labour, raw material (e.g., iron, leather and rubber) and transportation costs rose. The overall rate of inflation eased to a six-month low, however, and was modest. Index readings for the manufacturing and service sectors were generally alike.