India's factory growth cooled to eight-month low in September, PMI shows

Growth in India's manufacturing industry cooled to an eight-month low in September as solid demand and output eased slightly, according to a business survey that also showed weaker price increases despite rising input cost inflation.

Factory production growth has been weakening since June and is likely to have further affected the expansion rate in Asia's third-largest economy last quarter, after the rise in gross domestic product (GDP) softened to 6.7% in April-June.

The HSBC final India Manufacturing Purchasing Managers' Index, compiled by S&P Global, fell to 56.5 last month from 57.5 in August - the weakest since January - and slightly below a preliminary estimate of 56.7.


However, the reading has been above the 50-mark, which separates growth from contraction, since July 2021.

"Momentum in India's manufacturing sector softened in September from the very strong growth in the summer months," noted Pranjul Bhandari, chief India economist at HSBC.

New orders - a key gauge of demand - grew at the weakest pace since December, though were still robust, while output was at an eight-month low.

International demand took a bigger hit and export growth eased to a level not seen in a year-and-a-half. Only 6% of firms surveyed reported an increase in overseas orders.

That meant business sentiment soured slightly and the future output sub-index, indicating optimism among firms about the coming year, fell to its lowest since April 2023 and employment generation eased to a six-month low.

Although input cost inflation increased from August, inflation in prices charged was at a five-month low, suggesting not all price rises were being passed on to customers amid weaker demand.

"Input prices rose at a faster rate in September while factory gate price inflation eased, intensifying the compression on manufacturers' margins," added Bhandari.

However, a Reuters poll last month showed price pressures would increase in coming months despite inflation recently falling below the Reserve Bank of India's medium term target of 4%.

The central bank is expected to keep interest rates on hold in October and only start cutting from December.