Indian manufacturing sector conditions continue to strengthen in Oct

Manufacturing sector conditions in India continued to strengthen in October, buoyed by reforms in goods and services tax (GST), productivity gains and tech investment, according to purchasing managers’index (PMI) data.

The seasonally adjusted HSBC India manufacturing PMI was up from 57.7 in September to 59.2 in October, indicating a quicker improvement in the health of the sector.

A faster increase in new orders boosted growth of output and buying levels, and the latter drove a near-record expansion in input inventories.

Meanwhile, external sales rose at the slowest pace in ten months.

There was a modest and softer increase in input costs, but the rate of charge inflation matched September's near 12-year high.

New orders increased further at the start of the third fiscal quarter, with the pace of expansion being sharp and stronger than that recorded in September.

Similarly, growth of output quickened from the previous month. Matching that seen in August, the rate of expansion was the joint-best in five years, according to a release from S&P Global, which compiled the PMI data.

October data showed that the pick-up in sales growth mainly stemmed from the domestic market, as new export orders increased at a softer rate. The latest improvement in international demand for Indian goods was marked, though the least pronounced in the calendar year-to-date.

Manufacturers continued to purchase additional raw materials and semi-finished items in October, reportedly to supplement production and add to their inventories. Buying levels expanded at the fastest pace since May 2023.

One factor that supported input purchasing growth was a notable softening of cost inflation. The latest rise in overall expenses was modest, the weakest in eight months and well below the long-run series average.

Despite receding cost pressures, the rate of charge inflation matched that registered in September and was, therefore, the joint-highest in 12 years.

Survey participants indicated that demand strength was the key factor behind the current hike in output prices.

Job creation entered its twentieth consecutive month in October. The rate of expansion was moderate and broadly similar to September.

Capacity pressures among Indian manufacturers remained mild, as signalled by another slight rise in outstanding business volumes. Demand strength was the main determinant of rising backlogs, according to monitored companies.

Suppliers were generally able to dispatch inputs in a timely manner. Average delivery times shortened to a moderate extent in October, and one that was the most pronounced in four months.

Holdings of raw materials and semi-finished items increased at the second-fastest rate since data collection began in March 2005 (behind May 2023). Survey members indicated that demand buoyancy encouraged them to lift stocks.

Finished goods inventories likewise rose, but here the pace of accumulation was only marginal as firms often fulfilled sales from warehoused products.

Regarding the outlook, manufacturers attributed positive expectations to GST reforms, expanded capacities and marketing efforts. They also predicted demand resilience and hope that pending contracts will be approved.