India's manufacturing PMI softens to 18-month low in Dec 2023

The country's Purchasing Managers' Index (PMI) softened in December 2023, hitting an 18-month low at 54.9, according to the HSBC India Manufacturing PMI survey conducted by S&P Global. In November, the manufacturing PMI stood at 56.0. A reading above 50 indicates an overall increase in the factory output. During the month under review, input costs rose at the second-slowest rate in nearly three-and-a-half years and charge inflation softened to a nine-month low.

"India's manufacturing sector continued to expand in December, although at a softer pace, following an uptick in the previous month. Growth of both output and new orders softened, but on the other hand, the future output index rose since November. Rates of increase in input and output prices were broadly unchanged," says Pranjul Bhandari, Chief India Economist, HSBC.

In terms of output, new orders placed with Indian manufacturers rose sharply but to a lesser extent in December. According to the survey, the pace of expansion was the slowest seen in a year-and-a-half.

"New business gains, favourable market conditions, fairs and expositions collectively induced another sharp increase in manufacturing production during December," says the survey. During the month under review, international order receipts by Indian goods producers witnessed a 21^st consecutive increase. The companies noted gains from clients in Asia, Europe, the Middle East and North America, thus witnessing an expansion of new export sales at a moderate pace.

"Goods producers signalled a further uptick in purchasing costs at the end of the 2023 calendar year. Among the items reported to have been up in price were chemicals, paper and textiles. Little-changed from November, however, the rate of inflation was negligible by historical standards and was the second-weakest in just under three-and-a-half years," says the survey. Meanwhile, December was the fourth consecutive month when the rate of charge inflation surpassed that of input prices.

In terms of employment, the employment was largely stable during the month under review with the respective seasonally adjusted index registering only fractionally above the 50.0 no-change mark.

In terms of stocks, while the input holdings witnessed an increase, the inventories of the finished products witnessed a decline. The latter was attributed to the fulfilment of orders from warehoused items.

"The key determinant of rising input inventories was a sustained increase in buying levels. Quantities of purchases expanded throughout the last two-and-a-half years. The pace of growth seen in December was sharp, albeit the slowest since November 2022."