New business and production in manufacturing sector increase marginally, PMI data released

Growth in India's manufacturing sector slowed in August as production and sales grew at the slowest rate since January, while business confidence was compromised by competitive pressures and concerns over inflation. According to a monthly survey on Monday,.

The seasonally adjusted HSBC India Manufacturing Purchasing Managers' Index, a composite indicator designed to provide a single-number overview of operating conditions in the manufacturing economy, stood at 57.5 in August, down from 58.1 in July, although still well above the long-run average of 54.0.

In PMI terminology, a print above 50 is considered expansion, while a number below that level represents contraction. "The Indian manufacturing sector continued to expand in August, although the pace of expansion slowed slightly. New orders and output also mirrored the headline trend, with some panelists citing fierce competition as a reason for the slowdown," said Pranjul Bhandari, chief India economist at HSBC.

According to the survey, new business grew sharply in the second quarter of the fiscal year, but the pace of expansion fell to a seven-month low. Similarly, new export orders grew at the slowest pace since the start of the 2024 calendar year.

On the prices front, goods producers benefited from easing cost pressures during August, according to Bhandari. "The positive thing is that the increase in input costs moderated sharply. Manufacturers increased their raw material procurement activity to build safety stocks. In line with input costs, the pace of output price inflation also moderated, but this reduction was to a much lesser extent, thereby boosting margins for manufacturers," Bhandari said.

The survey further said that job creation moderated in the middle of the second financial quarter as some firms cut headcount. Nevertheless, the overall rate of employment growth remained solid in terms of historical data. According to the survey, business confidence has declined and panelists are at their least optimistic level since April 2023.

"The business outlook for the year ahead softened slightly in August, driven by competitive pressures and inflation concerns," Bhandari said. Meanwhile, government data on Friday showed India's economic growth fell to a 15-month low of 6.7 per cent in April-June 2024-25, mainly due to poor performance of the agriculture and services sectors. Gross domestic product (GDP) grew 8.2 per cent in the June quarter of 2023-24.

The HSBC India Manufacturing PMI is compiled by S&P Global from responses to questionnaires sent to purchasing managers in a panel of about 400 manufacturers.