India's manufacturing activity slows to to an eight-month low in September: Private survey

The HSBC India Manufacturing Purchasing Managers Index (PMI), compiled by S&P Global, dropped to 56.5 in September from 57.5 in August.

The index had previously stood at 58.1 in July, 58.3 in June, 57.5 in May, and 58.8 in April.

Although slightly below the preliminary forecast of 56.7, the PMI has remained above the 50-point mark, indicating expansion, for nearly three years.

The index is based on feedback from around 400 manufacturers.

"Despite the slowdown, employment levels and purchase volumes increased, while business confidence remained close to its long-term average," the survey noted.

It also reported moderate rises in both input costs and selling prices.

One of the factors contributing to the overall sales decline in September was the more modest increase in export orders, which saw the slowest growth rate in a year and a half.

While factories continued to produce at a strong pace, surpassing long-term averages, growth eased in consumer and capital goods sectors and remained steady for intermediate goods manufacturers.

Cost pressures increased, driven by higher prices for chemicals, packaging, plastics, and metals.

“India's manufacturing momentum weakened in September after robust growth during the summer," chief India economist at HSBC, Pranjul Bhandari said.

"Both output and new orders grew at a slower pace, with export demand especially impacted as the new export orders PMI hit its lowest since March 2023," Bhandari added.

She noted that while input costs rose in September, factory gate price inflation slowed, putting pressure on manufacturers' profit margins.

"This profit squeeze may affect companies' hiring, as employment growth has slowed for the third consecutive month," HSBC's chief India economist remarked.

Despite these challenges, the Reserve Bank of India (RBI) has raised its GDP growth forecast for FY25 from 7 percent to 7.2 percent, citing strong rural and urban demand and expectations of a normal monsoon.

The survey highlighted positive trends in domestic demand, with successful advertising campaigns and strong client interest driving sales growth.

However, it emphasized that overall growth in manufacturing had softened, especially in consumer and capital goods.

The RBI's Monetary Policy Committee held the benchmark rate at 6.5 percent in August, though analysts expect a potential rate cut in the coming months.

Retail inflation edged up to 3.65 percent in August from 3.6 percent in July, largely due to persistent food price pressures.

Inflation has remained close to the RBI’s medium-term target of 4 percent.

The survey also indicated mixed business sentiment.

Around 23 percent of manufacturers expect output growth in the next year, while the rest anticipate no change, leading to the lowest level of business confidence since April 2023.