India's Manufacturing Growth Cools to Eight-Month Low in September: PMI Report

India's Manufacturing Sector experienced a slowdown in growth, reaching an eight-month low in September, as indicated by the HSBC final India Manufacturing Purchasing Managers' Index (PMI), compiled by S&P Global. The PMI fell to 56.5 last month from 57.5 in August, marking the weakest reading since January and slightly below the preliminary estimate of 56.7.

Despite the decline, the index remains above the crucial 50-mark, which differentiates expansion from contraction, a trend that has continued since July 2021. This cooling in manufacturing growth follows a period of solid demand and production, suggesting potential challenges for the economy in the upcoming quarter, especially after the GDP growth softened to 6.7% in April-June.

Pranjul Bhandari, chief India economist at HSBC, noted that the momentum in the manufacturing sector had softened in September compared to the strong growth seen in the summer months. Key indicators showed that new orders, a vital measure of demand, grew at their slowest pace since December, although they remained robust overall. Similarly, factory output dropped to its lowest level in eight months.

International demand also faced significant challenges, with export growth hitting a level not observed in a year and a half. Only 6% of firms surveyed reported an increase in overseas orders, indicating a decrease in business sentiment. The future output sub-index, reflecting firms' optimism for the coming year, fell to its lowest since April 2023, and employment generation eased to a six-month low.

Input cost inflation saw an uptick compared to August, but price inflation charged by manufacturers reached a five-month low. This suggests that not all cost increases were being passed on to customers amid weakened demand, further squeezing manufacturers' margins. Bhandari emphasized that the rise in input prices coupled with easing factory gate price inflation intensified this margin compression.

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Looking ahead, a Reuters poll indicated that price pressures could rise in the coming months, despite recent inflation falling below the Reserve Bank of India's medium-term target of 4%. The central bank is expected to maintain interest rates in October and may only begin cutting rates from December.

[Disclaimer: The information presented in this article is based on the latest data available as of October 1, 2024, and is subject to change with new economic developments.]