India's factories ended the July–September quarter on a high. The seasonally adjusted HSBC India Manufacturing Purchasing Managers' Index (PMI) rose to 55.1 in September from 52.8 in August, marking the strongest improvement in the sector's health in seven months.
"India's factory sector ended the quarter on a firmer footing. The PMI rose to 55.1 in September, up from 52.8 as stronger domestic and overseas demand lifted sales and production," said Pranjul Bhandari, Chief India Economist at HSBC.
The PMI is based on a monthly survey of purchasing managers. A reading above 50 means the sector is expanding, while a reading below 50 signals contraction. The further above 50, the stronger the growth. At 55.1, Indian manufacturing is expanding at a solid pace.
The average PMI for the quarter was 53.8. Based on the August and September readings, that implies July was around 53.5, meaning September's jump came after two relatively softer months.
What Drove the Rise
- New orders: Firmer demand for electronics, food, pharmaceutical and textile products lifted new orders, and total sales grew at the fastest pace since February.
- Exports: New export orders grew faster, with demand from Brazil, Europe, the UAE and the US.
- Output: Factory output expanded at its fastest pace in four months.
- By category: Intermediate goods saw the strongest growth in orders and output, while capital goods saw only modest gains.
Jobs and Confidence
"Hiring resumed at its fastest pace since May, and manufacturers became more optimistic about the months ahead," Bhandari said.
Business confidence about future output rose to a four-month high. Manufacturers also bought more materials and built up inventories, with stocks of purchases rising at the fastest pace in seven months and well above the long-run average.
Why It Matters: Growth With a Cost Warning
The survey shows healthy demand, but also a building problem: input costs. Manufacturers reported faster increases in costs in September, mainly due to higher prices of electronic components, pharmaceutical items and steel.
The rise in electronic component costs fits a wider global trend. Memory chip prices have been pushed up by demand from AI data centres, which has already raised smartphone prices in India and pushed more budget buyers towards 4G phones. If such cost increases continue, manufacturers may eventually pass them on to consumers.
The inventory build-up is also worth watching. Firms stocking up well above normal levels can signal confidence in future demand, but it can also reflect efforts to buy ahead of further price rises.
A Contrast With the Markets
The strong factory data comes in a week when Indian stock markets have been under pressure, with foreign investors selling heavily. The PMI suggests that the real economy's manufacturing engine is in good shape, even as global factors such as high US bond yields and crude prices weigh on equity sentiment.
The Bottom Line
September's PMI shows Indian factories getting busier: more orders, more exports, more hiring and more confidence. The key risk ahead is cost, as rising prices for electronics, pharma inputs and steel could squeeze margins or feed into consumer prices in the months to come.
With inputs from IANS.
