Manufacturing activity slows to 57.5 in September; sentiment improves

A softer pace of expansion in new orders pushed manufacturing activity to its lowest level in five months of 57.5 in September, compared with 58.6 in August, according to data released Tuesday.

"India's manufacturing industry showed mild signs of a slowdown in September, primarily due to a softer increase in new orders, which tempered production growth," said Pollyanna De Lima, Economics Associate Director, S&P Global Market Intelligence.

The seasonally adjusted S&P Global India Manufacturing Purchasing Managers’ Index remained above the 50-mark, which separates expansion from contraction, and the long-term average reading of 53.8.


"Growth of new export orders softened from August's nine-month high but remained sharp. Firms noted new business gains from clients in Asia, Europe, North America and the Middle East,” S&P Global India noted in its release.

India's trade deficit rose to a 10-month high in August, as exports declined 7% compared with the previous year.

“The latest manufacturing PMI shows firms generally remain optimistic. Despite slowing global growth, domestic demand is broadly holding up,” said Rahul Bajoria, Head, EM Asia (ex-China) Economics, Barclays.

India’s core sector expanded 12.1% in August—a 14-month high—with experts indicating that strong infrastructure performance is likely to pick up industrial growth as well.

The strength in manufacturing is also expected to translate into higher employment numbers.

“Upbeat forecasts continued to drive job creation efforts and initiatives to replenish input stocks. Together, these indices point towards a favourable trajectory for the Indian manufacturing industry,” De Lima noted.

The 400 Indian manufacturers surveyed by S&P Global said output levels would increase in the next twelve months. The level of positive sentiment was at its highest in 2023.

However, on the inflation front, PMI data indicated to building price pressures.

While the input prices cooled off in September, after they had hit a one-year high in August, demand added to price pressures.

“Driven by higher labour costs and demand strength, average prices charged by Indian manufacturers rose at a solid and faster rate that outpaced its long-run average,” the release stated.

India’s inflation is likely to cool further in September as vegetable price shocks fade, but most international and national forecasters have raised India’s inflation forecast for the year.

On Tuesday, the World Bank revised India’s growth forecast to 5.9% for FY24, closer to RBI’s upper target level of 6%.

Input prices are expected to face pressure again, with crude prices rising. India’s crude basket averaged $93.5 in September, compared with $83.8 at the start of the year.

Output inflation is expected to rise faster if firms decide to pass on the increase in input costs.

“The solid increase in output charges signalled by the PMI data, which occurred in spite of a notable retreat in cost pressures, could restrict sales in the coming months," De Lima added.