Factory activity rebounded in October from 8-month low in Sept

Highlights:

• In October, India’s manufacturing activity experienced a rebound, breaking a three-month trend of slowing growth, according to the HSBC India Manufacturing Purchasing Managers’ Index (PMI) survey by S&P Global Market Intelligence. The PMI rose to 57.5 from September’s 56.5, signifying expansion in the private manufacturing sector, as any PMI reading above 50 indicates growth. Here are key takeaways:

October Manufacturing Highlights

Output Growth and New Orders:

• Output increased, spurred by both domestic and international orders, with strong demand from Asia, Europe, Latin America, and the U.S.
• Notably, export orders rebounded after hitting an 18-month low growth rate in September, driven by new client deals.

Sectoral Strength:

• Production gains were especially strong in consumer and investment goods sectors, supported by high demand and positive sales projections.

Inflationary Pressures:

• Input costs rose at a three-month high, attributed to higher freight, labor, and material expenses.
• Companies responded by raising output prices at a faster pace, indicating a pass-through of cost pressures to consumers.

Employment and Inventory Levels:

• Employment rose as firms increased hiring, with 10% of surveyed firms reporting higher staffing and only 1% reporting job cuts.
• Firms also boosted pre-production inventories, marking one of the strongest increases in input stocks seen in nearly 20 years.

Business Confidence:

• Confidence levels improved, with businesses more optimistic about future output volumes. This optimism follows a dip in September, where confidence had fallen to the lowest level since April 2023.
• Approximately 23% of firms expect growth in the coming year, with confidence now above the 13.5-year average.

Economic Commentary

• Pranjul Bhandari, HSBC’s chief India economist, attributed the PMI uptick to stronger economic conditions, consumer demand, and new product rollouts. She noted that although business confidence is high, inflationary pressures remain significant in areas like materials, labor, and transportation, pushing both input and output prices upward.

Prelims Takeaways

• Purchasing Managers’ Index (PMI)