India's manufacturing growth slows in September as costs rise

Although still indicating robust sector health, this marked the weakest expansion since January, with overall manufacturing growth across the second fiscal quarter at its lowest point since late 2023.

Factory output and sales growth continued to soften for the third consecutive month, recording their weakest performance since the start of the year. Despite this, they remained above their long-term averages. International orders saw a notable decline, with the rate of expansion hitting its slowest pace in a year and a half, S&P Global said in a press release.

However, the sector continued to show resilience in some areas. Net employment increased, alongside a rise in purchasing quantities, reflecting sustained confidence in future business activity. Business optimism remained steady, aligning closely with its long-term average, even as it fell to its lowest level since April 2023.

Inflationary pressures persisted, with input costs for chemicals, packaging, plastics, and metals rising, although inflation remained moderate by historical standards. Manufacturers passed some of these costs on to customers, leading to a moderate rise in selling prices. Despite this, price inflation softened to a five-month low, mirroring the slower increase in input costs.

The overall rate of growth was curbed by a mix of fierce competition and softer increases in new export orders. Factories, while maintaining a robust production pace, experienced their weakest output growth in eight months, with both the consumer and capital goods segments slowing, and intermediate goods holding steady.

Despite rising purchasing costs and reduced hiring, companies were able to manage workloads effectively, with no change in outstanding business volumes. Inventory trends presented a mixed picture: stocks of finished goods continued to fall, a trend persisting for over seven years, while raw material holdings saw another sharp increase, supported by improved lead times.

Looking ahead, only 23 per cent of manufacturers anticipate output growth in the next year, while the rest expect stability. This tempered outlook contributed to a dip in overall business confidence, reaching its lowest level in nearly 18 months.

Pranjul Bhandari, chief India economist at HSBC, said: “Momentum in India’s manufacturing sector softened in September from the very strong growth in the summer months. Output and new orders grew at a slower pace, and the deceleration in export demand growth was especially evident as the new export orders PMI was the lowest since March 2023. Input prices rose at a faster rate in September while factory gate price inflation eased, intensifying the compression on manufacturers’ margin. Weaker profit growth might have an impact on companies’ hiring demand, as the pace of employment growth slowed for a third month.”

Fibre2Fashion News Desk (KD)