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India’s manufacturing PMI eased to 54.7 in October as domestic orders and hiring weakened, while export orders grew at their fastest pace in six months
India’s manufacturing sector lost some momentum in October as domestic demand weakened and factories slowed hiring, but stronger overseas orders offered a cushion, highlighting the contrasting forces shaping the country’s industrial growth.
The HSBC India Manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, eased to 54.7 in October from 55.1 in September. The reading was also below the preliminary estimate of 54.9 released earlier in the month.
A PMI reading above 50 indicates expansion, while a reading below that level signals contraction. India’s manufacturing sector has remained in expansion territory, but the latest decline points to a moderation in the pace of growth.
New orders, a key indicator of demand, pulled back marginally from September’s seven-month high. However, export orders provided a bright spot, accelerating to their fastest pace in six months.
The stronger overseas demand helped cushion the slowdown in overall factory activity, even as domestic demand showed signs of losing momentum.
Factory output and hiring lose pace
Manufacturing output also lost some ground during October, while employment growth slowed for the second consecutive month of expansion.
Factories continued to add workers, but the pace of hiring weakened compared with September. Capital goods manufacturers were among those that cut staff during the month.
More from BusinessBusiness confidence also dipped marginally. Although sentiment remained broadly in line with levels seen over much of the past year, it was below its long-run average.
The moderation in hiring and business confidence suggests that manufacturers are becoming more cautious about the outlook, despite continued growth in new orders.
Record inventory build-up raises questions
Another notable development in October was the sharp accumulation of finished goods inventories.
Manufacturers increased their stocks of finished products at the fastest pace in the survey’s more than 21-year history. Companies attributed the build-up to buoyant demand and efforts to prevent shortages.
However, the increase in finished goods inventories coincided with a slowdown in raw material purchasing. Growth in input buying fell to its weakest pace in the entire 64-month sequence of expansion.
This divergence raises questions about manufacturers’ expectations for future demand. While companies are building up stocks of finished products, their slower pace of raw material purchases could indicate a more cautious approach to production and inventory management.
At the same time, producers increased their input inventories at the fastest pace in eight months as they sought to build precautionary buffers against potential shortages and disruptions.
“Producers also increased input inventories to the greatest extent in eight months, building precautionary buffers to mitigate potential shortages and meet rising production requirements amid a volatile global environment,” said Pranjul Bhandari, HSBC’s chief India economist.
Factory price pressures ease to nearly four-year low
The survey also brought some relief on the inflation front, with manufacturers reporting a moderation in both input costs and selling prices.
Input cost inflation retreated to its lowest level since February. Meanwhile, the pace of increase in factory selling prices fell to its weakest in nearly four years.
The moderation in selling prices suggests that manufacturers have limited room to pass on higher costs to customers, particularly as domestic demand loses some momentum.
Lower input cost pressures could offer some relief to businesses by easing the pressure on production costs. However, slower growth in selling prices also points to weaker pricing power among manufacturers.
What does the October PMI signal?
The October survey presents a mixed picture of India’s manufacturing sector. While the industry continues to expand, weaker domestic orders, slower hiring and softer business confidence indicate that the recovery in factory activity is losing some momentum.
Stronger export orders remain an important source of support. Their fastest expansion in six months suggests that overseas demand is helping manufacturers offset some of the weakness in the domestic market.
The record build-up in finished goods inventories, however, will be worth watching. If demand does not keep pace with production, manufacturers may have to adjust output and inventory levels in the coming months.
