India’s manufacturing PMI rebounded in September, with the Purchasing Managers’ Index (PMI) rising to a seven-month high as stronger demand boosted new orders, exports and factory output. The HSBC India Manufacturing PMI, compiled by S&P Global, climbed to 55.1 from 52.8 in August, ending a three-month slowdown in the sector.

Key Highlights

• India's manufacturing PMI climbed to 55.1 in September, its highest level since February, signalling stronger factory activity.
• New orders, exports and output accelerated, while hiring resumed and business confidence reached a four-month high.

The latest reading was down from the preliminary estimate of 55.7 but was still the highest since February. A PMI reading above 50 is considered expansion, below 50 is considered contraction.

India's Manufacturing PMI Rises to 55.1 in September

The jump in the manufacturing PMI indicated a boost in business activity and demand improvement. New orders grew at their strong pace since February, spurred by demand for electronic goods, food products, pharmaceutical and textile products.

Export orders also picked up during the month too, as manufacturers noted rising demand from customers in Brazil, Europe, the United Arab Emirates (UAE) and the United States.

Manufacturing Output and New Orders Accelerate

India’s manufacturing output expanded at its fastest pace since May, supported by stronger new business and rising demand. Manufacturers increased purchases of materials and built up inventories in anticipation of further sales.

Pranjul Bhandari, chief India economist at HSBC, said companies increased material purchases and stocks to prepare for expected demand. Finished-goods inventories recorded their second-largest increase in nearly 12 years, indicating a shift away from the leaner inventory levels maintained previously.

The rise in output and inventory accumulation reflected manufacturers’ preparations for sustained demand, according to the survey.

India Manufacturing Sector Hiring Rebounds in September

Stronger demand also supported employment growth in the manufacturing sector. Hiring expanded at its fastest pace since May, recovering from a decline in August. The previous month had marked the first fall in factory employment in two-and-a-half years.

Business confidence also improved, reaching a four-month high in September. Manufacturers reported optimism driven by new enquiries and expectations that demand would remain strong in the coming months.

The improvement in hiring and business sentiment accompanied the broader recovery in factory activity.

Also Read: Manufacturing PMI Falls to 5-Year Low in August Amid Sales Slowdown

Input Costs Rise as Manufacturing Activity Expands

Despite the improvement in demand and output, manufacturers faced higher cost pressures in September. Input cost inflation accelerated compared with August, driven by rising prices of electronic components, pharmaceutical products and steel.

However, the pace of input price inflation remained below its long-run average. Selling prices also increased during the month, although the rise was modest and remained below the historical trend.

The survey’s findings came amid broader inflation concerns. Energy and food prices were the main drivers behind the rise in India's inflation to above the Reserve Bank of India's 4% medium-term target for the third straight month in August.

Manufacturing industry improved its momentum in September with India manufacturing PMI reading showing orders, exports and production improved to sustain factory activity. But as input costs continue to increase, manufacturers have to keep an eye on them.