New Delhi: India’s manufacturing sector regained momentum in September as stronger domestic and overseas demand pushed up new orders and output, while companies resumed hiring, according to the HSBC India Manufacturing Purchasing Managers’ Index (PMI), released on Thursday.
The seasonally adjusted index rose by more than two points to 55.1 in September from 52.8 in August, marking the strongest improvement in the sector’s health in seven months. That said, the average for the second fiscal quarter stood at 53.8, its lowest since the same period in 2021, indicating that the stronger September reading followed a relatively softer quarter for the manufacturing sector.
The September recovery comes against the backdrop of higher exports in August and an uptick in , pointing to continued strength in economic activity.
The survey covered around 400 manufacturers, with data collected between 7 and 24 September. The is based on responses from purchasing managers, and a reading above 50 indicates an overall improvement from the previous month.
Demand-led growth
The improvement in September was driven by a faster rise in new orders and output. Demand for electronics, food, pharmaceutical and textile products helped drive a sharper increase in new business. The upturn in total sales was the fastest since February, it said.
New export orders also increased at a faster pace, with manufacturers reporting stronger demand from customers in Brazil, Europe, the UAE and the US. The stronger demand supported the sharpest increase in factory output in four months.
The improvement in demand also supported job creation. Employment growth resumed in September after falling the previous month, with the pace of hiring the strongest since May, as per the report.
“India’s factory sector ended the quarter on a firmer footing. The PMI rose to 55.1 in September, up from 52.8, as stronger domestic and overseas demand lifted sales and production,” said Pranjul Bhandari, chief India economist at HSBC.
“Hiring resumed at its fastest pace since May, and manufacturers became more optimistic about the months ahead. Companies bought more materials and built up stocks to prepare for anticipated sales,” she added.
Manufacturers increased their purchases of materials at a faster pace in September. Stocks of purchases rose at the strongest rate in seven months and well above the long-run average.
As per the data, finished-goods inventories also increased for the third consecutive month. The pace of accumulation was the second-fastest in 11-and-a-half years, behind July, as companies built stocks in anticipation of higher sales.
Business confidence also improved, with manufacturers’ expectations for future output rising to a four-month high. Companies cited new enquiries in the pipeline and expectations of favourable demand conditions as reasons for the stronger outlook.
Cost pressures rise
Cost pressures increased during the month, however. Manufacturers reported higher prices for electronic components, items and steel, which pushed up overall input costs. The rate of input-cost inflation accelerated from August, although it remained below its long-run average.
Selling prices also increased at a faster pace, but the rise remained modest and below the long-term trend. Cost pressures were strongest among intermediate goods producers, and weakest among capital goods producers.
Intermediate goods was the strongest-performing segment in September, recording the fastest growth in both new orders and output. Capital goods remained the weakest segment, with growth in both measures slowing from August.