Manufacturing Sector Rebounds to Seven-Month High
India’s factory sector showed a significant improvement in activity levels during September, with the HSBC India Manufacturing Purchasing Managers’ Index (PMI) climbing to 55.1. This marks a sharp increase from the 52.8 recorded in August and represents the highest reading in seven months. A PMI reading above 50 indicates expansion, while below 50 signals contraction.
The recovery follows a period of slowing momentum, where the index had dipped from 54.2 in June to 53.5 in July before hitting a five-year low in August. Despite the strong finish to the quarter, the overall manufacturing momentum during the July-September period remained relatively subdued. The PMI averaged 53.8 in the second quarter of FY27, which is the lowest quarterly average since the corresponding period in 2021.
Demand Drives Production and Hiring
The September upturn was primarily fueled by firmer demand for electronic goods, food products, pharmaceuticals, and textiles, both from domestic and overseas markets. This stronger demand translated into the sharpest increase in factory production in four months.
Among broad manufacturing categories, intermediate goods recorded the strongest growth in both output and new orders. In contrast, capital goods remained the weakest segment, with growth slowing compared to August.
Employment trends also improved, with manufacturing employment returning to growth in September after a decline in the previous month. The pace of job creation was the strongest observed since May.
Cost Pressures and Business Outlook
While activity levels improved, cost pressures persisted. Input cost inflation accelerated in September, driven by higher prices for electronic components, pharmaceutical products, and steel. However, the rate of increase remained below its historical average.
Manufacturers also raised selling prices at a quicker pace, although output price inflation remained modest and below its long-run trend.
Business confidence strengthened to a four-month high, supported by new enquiries and expectations of favourable demand conditions in the coming months.
Pranjul Bhandari, chief India economist at HSBC, noted that the factory sector ended the quarter on a firmer footing, citing stronger demand, the resumption in hiring, and increased stock-building by manufacturers.