Factory growth eases to 8-month low on slow pace of output, new orders

India's manufacturing Purchasing Managers Index (PMI), which measures growth in India's manufacturing industry, eased to an eight-month low of 56.5 in September from 57.5 in August on the softening of growth in the 'consumer and capital goods' segments, according to the latest PMI figures released by HSBC.

The September data revealed a 'mild setback' in manufacturing growth across India as the rates of expansion in factory production and sales receded for the third straight month, both of which were at their weakest since the turn of the year.

“Momentum in India’s manufacturing sector softened in September from the very strong growth in the summer months. 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. 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,” says Pranjul Bhandari, Chief India Economist at HSBC

International orders rose at the slowest pace in a year-and-a-half, says the report.

Despite a loss of growth momentum, net employment and quantities of purchases rose, while business confidence was broadly aligned with its long-run average. On the price front, there were moderate increases in input costs and selling charges, the data shows. "With manufacturing growth softening throughout the second fiscal quarter, the average PMI reading slipped to its lowest since the three months to December 2023."

Positive demand trends, successful advertising and favourable client interest featured as the main determinants of sales growth in the qualitative part of the survey. The upturn, which was substantial but the slowest in 2024 so far, was reportedly curbed by fierce competition.

Another factor that constrained total sales growth was a softer increase in new export orders. The rate of expansion was moderate and the least pronounced in a year-and-a-half. "Factories continued to produce goods at a robust pace that outpaced the long-run series average," the research note adds.

As a result of rising purchasing prices, as well as greater labour costs and favourable demand conditions, Indian manufacturers lifted their charges in September. "The rate of inflation softened to a five-month low and was similar to that seen for input costs."

The September data highlighted another substantial increase in quantities of purchases among goods producers. "The rise was supported by new business growth, positive client appetite and greater production requirements. Yet, input buying expanded at the slowest pace in the calendar year-to-date."

Hiring growth also receded in September, reflecting a reduction in the number of part-time and temporary workers at some firms. "Those that recruited extra staff cited projects in the pipeline. The combination of job creation and slower increases in new business meant that companies were able to stay on top of their workloads."

Around 23% of Indian manufacturers forecast output growth in the year ahead, while the remaining firms predict no change. The HSBC report says the overall level of business confidence fell to its lowest since April 2023.