Manufacturing activity declines to eight-month low of 56.5 in September

Manufacturing activity for September

India's factory activity declined to an eight-month low of 56.5 in September from 57.5 in the previous month as export demand decelerated and output growth slowed, according to the results of a private survey released on October 1.

The seasonally adjusted HSBC India Manufacturing Purchasing Managers’ Index, which has hovered above the long-run average since the start of the fiscal, is way below the 58.2 reading recorded in the June quarter of the fiscal 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," HSBC chief India economist Pranjul Bhandari said.

For the second quarter, manufacturing PMI averaged 57.4, the lowest since October-December 2023.

Merchandise exports remained muted in the second quarter, which also had a bearing on activity.

Data released a fortnight ago showed that merchandise exports had contracted 9.4 percent in August to $34.71 billion.

Adding to the low demand was a build up of cost pressures, with 400 manufacturing firms surveyed citing panellists
increased chemical, packaging, plastic and metal prices.

However, output charges rose at the slowest pace in five months as firms did not pass on costs to the consumers.

This is likely to put pressure on margins and profitability, which may in turn affect hiring.

"Weaker profit growth might have an impact on companies’ hiring demand, as the pace of employment growth slowed for a third month,” Bhandari said.

The conditions also weighed on business confidence, as future outlook fell to its lowest level in over year and a half.

"Around 23% of Indian manufacturers forecast output growth in the year ahead, while the remaining firms predict no change," the survey noted.

India’s infrastructure sector hasn’t performed too well either. Output in the eight core industries contracted for the first time in nearly four years by 1.8 percent in August.

Capex spending by the government was also 30 percent lower in August from the previous year.

While this is likely to keep fiscal deficit contained, economists say the government will have to ramp up spending for a higher GDP growth.