India’s manufacturing activity moderated in October, with the HSBC India Manufacturing Purchasing Managers’ Index (PMI) slipping to 54.7 from 55.1 in September, as growth in output and new orders eased. However, strong international demand pushed new export orders to a six-month high, while selling price inflation fell to its lowest level in nearly four years, according to data released on Monday.
Despite the moderation, the seasonally adjusted PMI remained above its long-run average and comfortably above the 50-point threshold that separates expansion from contraction, indicating continued strength in the country’s manufacturing sector.
The latest survey, compiled by S&P Global, showed that manufacturers continued to benefit from improving demand conditions, new client acquisitions and successful marketing campaigns. New business increased sharply, although the pace of growth eased marginally from September’s seven-month high.
Pranjul Bhandari, chief India economist at HSBC, said, “India’s manufacturing PMI softened to 54.7 in October from 55.1 in the previous month, but remained firmly in expansionary territory and above its long-run average. Strong international demand pushed growth of new export orders to a six-month high, supporting a robust rise in output. Producers also increased input inventories to the greatest extent in eight months, building precautionary buffers to mitigate potential shortages and meet rising production requirements amid a volatile global environment. Although some material and energy costs increased, overall input and output price pressures eased slightly from the previous month.”
Export orders grow at fastest pace in six months
External demand emerged as a key driver of manufacturing activity in October, with new export orders rising at their fastest pace in six months.
Manufacturers reported increased orders from several international markets, including Bangladesh, Canada, Indonesia, Nepal, Oman, Saudi Arabia, Sri Lanka, the United Kingdom, the United States and the United Arab Emirates.
The improvement in export demand, alongside stronger domestic sales and new product launches, supported another sharp increase in factory production.
However, output growth moderated from September, primarily because of slower expansion among intermediate goods manufacturers. Despite this, intermediate goods producers continued to lead the overall increase in manufacturing output.
The survey pointed to an easing of inflationary pressures across India’s manufacturing sector.
Although manufacturers reported higher prices for several raw materials and energy inputs, the overall rate of input cost inflation declined to its lowest level since February.
Cost pressures moderated across all three broad manufacturing categories covered by the survey.
Manufacturers continued to increase selling prices to protect profit margins, but the rate of increase was marginal and the weakest in nearly four years.
Factory hiring slows despite rising workloads
Manufacturing employment increased for the second consecutive month in October as higher production requirements and rising workloads prompted companies to expand their workforce.
However, the pace of job creation weakened and remained marginal.
While manufacturers in some categories increased employment, capital goods producers reduced their workforce during the month.
Meanwhile, outstanding business volumes increased for the seventh consecutive month at the beginning of the third quarter of the financial year. The rate of accumulation, however, remained negligible.
Manufacturers build inventories to guard against shortages
Manufacturers continued to accumulate inventories in October to meet rising production requirements and guard against potential supply disruptions.
Stocks of finished goods increased at an unprecedented pace, reflecting deliberate efforts by companies to accommodate strong demand and prevent shortages.
Inventories of production inputs also rose, with the pace of accumulation reaching an eight-month high.
However, the pace of growth in input purchases weakened despite the increase in inventories.
The survey showed that purchasing activity expanded for the 64th consecutive month, although the rate of growth was the weakest over this period.
Business confidence weakens despite robust demand
Despite continued growth in new orders and production, manufacturers became less optimistic about the business outlook.
Business confidence declined from September and remained below its long-run average.
Nearly 18 per cent of manufacturers expected production to increase over the next 12 months, while the remaining respondents anticipated no change.
Optimism among manufacturers was supported by new client enquiries and expectations of stronger demand for industrial automation and technology solutions.
