Factory activity slows to 4-month low in September

India's manufacturing activity slowed to a four-month low of 57.7 in September as growth in new orders, output and input buying rose at the slowest rate since May, while job creation also declined to its lowest level in a year, according to a private survey released Wednesday.

Despite this, the Purchasing Managers' Index (PMI) reading remained well above the neutral 50 mark, signalling continued expansion in the sector.

The HSBC PMI, compiled by S&P Global, was 59.3 in August and 56.5 in September 2024.


"The September headline index softened, but it remained well above the long-term average," said Pranjul Bhandari, India chief economist at HSBC.

On average, the manufacturing sector PMI reading was 58.4 during the first half of FY26, higher than 57.8 in the same period last year.

Looking ahead, firms remained optimistic about production over the next 12 months, with the overall confidence level rising to a seven-month high. Survey respondents cited recent goods and services tax (GST) cuts as a growth driver, apart from favourable demand conditions, investment in marketing and better customer relations.

The GST Council approved restructuring of the indirect tax system effective September 22, introducing a two-slab rate of 5% and 18%, which lowered taxes on various household goods and consumer durables.

"Business confidence, as indicated by expectations for future output, showed a big jump in September, potentially reflecting optimism about the boost in demand from the cuts in GST, although US tariffs remain a strong headwind to the economy," said Bhandari.

The US has imposed a 50% tariff on India, among the highest alongside Brazil.

While new business volumes increased in September, the rate of growth slowed to a four-month low, with anecdotal evidence indicating competitive conditions as a factor for limiting expansion. Production levels also rose at its slowest pace since May, despite still showing solid growth.

International orders picked up at the end of Q2FY26, with manufacturers noting improvements in demand from Asia, Europe, the Americas and the Middle East.

"New export orders increased at a faster rate in September, indicating demand outside of the US might be offsetting any decline in demand from the US as a result of tariffs," explained Bhandari.

On the cost front, input prices rose, driven by higher prices for battery, cotton, electronic components and steel. Overall, inflation remained robust and reached its fastest pace since May, though still below its long-term average.

Selling prices increased faster than input costs, as monitored firms indicated greater outlays on labour, raw materials and transportation that led to hikes in output prices, which was facilitated by strong demand.