India Manufacturing PMI Rises To 55.1 In September As Factory Growth Hits Seven-Month High

India’s manufacturing sector staged a strong recovery in September, ending a three-month period of slowing growth as stronger demand boosted factory activity, employment and business sentiment.

The HSBC India Manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, rose to 55.1 in September from 52.8 in August.

Although the reading was below the preliminary estimate of 55.7, it marked the strongest expansion in factory activity since February. A PMI reading above 50 indicates growth.

New orders and exports boost factory activity

Manufacturers recorded their fastest increase in new orders since February, with demand strengthening for electronic, food, pharmaceutical and textile products.

Export orders also gathered pace, with companies reporting stronger demand from customers in Brazil, Europe, the UAE and the US.

Factory output expanded at its fastest rate since May, supported by increased new business and sustained demand. Companies also increased purchases of raw materials and built inventories in anticipation of higher sales.

“Companies bought more materials and built up stocks to prepare for anticipated sales. Finished-goods inventories recorded their second-largest increase in nearly 12 years, signalling a clear shift from leaner stock levels,” said Pranjul Bhandari, chief India economist at HSBC.

Hiring resumes as business confidence improves

Improving demand encouraged manufacturers to increase recruitment. Employment rose at its fastest pace since May, reversing the decline recorded in August, when factory employment fell for the first time in two-and-a-half years.

Business confidence also strengthened, reaching a four-month high in September. Companies cited rising enquiries and expectations of continued demand as key reasons for their improved outlook.

At the same time, input cost pressures increased during the month. Manufacturers reported higher prices for electronic components, pharmaceutical products and steel. Although input cost inflation accelerated from August, it remained below its long-term average.

Selling prices also increased, but the pace remained modest and below the historical trend.

Inflation has remained above the Reserve Bank of India’s 4% medium-term target for three consecutive months through August, driven mainly by higher food and energy costs. The RBI is expected to raise interest rates by a total of 50 basis points this year to 5.75%.