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Factory activity slows in August on decline in new business, output

The seasonally adjusted HSBC India Manufacturing Purchasing Managers’ Index (PMI) stood at 57.5 in August, below July's reading of 58.1.

Factory activity slows in August on decline in new business, output
[Source photo: Chetan Jha/Press Insider]

India’s factory activity slowed in August from the previous month as new business and output declined, a private survey showed.

The seasonally adjusted HSBC India Manufacturing Purchasing Managers’ Index (PMI) stood at 57.5 in August, below July’s reading of 58.1.

The reading last month, however, was above its long-run average of 54, signaling a substantial improvement in operating conditions, the survey said.

The indices vary between 0 and 100, with a reading above 50 indicating an overall increase compared to the previous month and below 50 an overall decrease.

While a drop in cost pressures helped boost purchasing activity, input prices rose at the slowest rate in five months. At the same time, strong demand allowed firms to pass on some of these costs to customers by raising prices.

“The Indian manufacturing sector continued to expand in August, although the pace of expansion moderated slightly. New orders and output also mirrored the headline trend, with some panellists citing fierce competition as a reason for slowdown,” Pranjul Bhandari, chief India economist at HSBC, said.

“Nevertheless, all three indicators (new orders, output and input costs) remain well above their historical averages. On a positive note, the rise in input costs slowed sharply. Manufacturers increased their raw material buying activity in order to build safety stocks,” Bhandari said.

“In line with input costs, the pace of output price inflation also decelerated, but the deceleration was to a much smaller extent, thereby increasing margins for manufacturers. Business outlook for the year ahead moderated slightly in August, driven by competitive pressures and inflation concerns,” he added.

Economic growth in the April-to-June quarter slowed to 6.7% from 7.8% in the previous quarter on slowing government expenditure during the general election, data released on Friday showed.

The survey said that though businesses sounded less optimistic about the future, they still raised their purchasing of raw materials to avoid running out of supplies. As a result, their pre-production inventories reached one of the highest levels recorded in nearly 20 years.

New business rose sharply midway through the second fiscal quarter, but the pace of expansion eased to a seven-month low, the survey said.

Panel members attributed the increase to advertising, brand recognition and healthy demand trends. Competitive conditions reportedly dampened growth, it added.

New export orders likewise increased at the weakest pace since the start of the 2024 calendar year. Yet, one-in-ten firms noted an improvement in international sales, which they associated with stronger demand from Asia, Africa, Europe and the US.

The HSBC India Manufacturing PMI® is compiled by S&P Global from responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers.

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