Factory output for March hits the highest in 8 months

India’s manufacturing sector growth recovered the ground lost in February, picking up to its highest in eight months as a faster upturn in total sales underpinned a sharper increase in output, according to HSBC India Manufacturing PMI.

The seasonally adjusted HSBC India Manufacturing Purchasing Managers’ Index (PMI) was up from 56.3 in February to 58.1 in March. The latest reading showed a substantial improvement in the health of the sector that was above its long-run average. A reading above 50 indicates an overall increase in the factory output.

March's acceleration came despite a mild slowdown in international order growth. Buoyant demand led companies to tap into their inventories to meet increased client appetite, resulting in the most rapid decline in finished goods stocks since January 2022.

Firms aimed to counter declining stock levels by acquiring additional inputs for their production processes at the quickest pace seen in seven months. Meanwhile, a stronger increase in purchase prices contrasted with a softer rise in selling charges

Helping boost the PMI was a stronger contribution from its largest sub-component: the New Orders Index. March saw total sales expand to the greatest extent since July 2024, with companies remarking on positive customer interest, favourable demand conditions and successful marketing initiatives.

Subsequently, firms scaled up production volumes at the end of the 2024/25 fiscal year. The rate of expansion was sharp, above its historical average and the strongest in eight months.

Although new export orders continued to increase strongly in March, the pace of growth retreated to a three-month low.

Several companies indicated that warehoused goods were used to meet rising sales requirements, which triggered the quickest drop in post-production inventories in over three years. The decline was the fourth in consecutive months and marked overall.

"India registered a 58.1 manufacturing PMI in March, up substantially from 56.3 during the previous month. Although international orders slightly slowed, overall demand momentum remained robust, and the new orders index recorded an eight-month high of 61.5. Strong demand prompted firms to tap into their inventories, causing the fastest drop in finished goods stocks in over three years,” said Pranjul Bhandari, Chief India Economist at HSBC.

“Business expectations remained fairly optimistic, with around 30% of survey participants foreseeing greater output volumes in the year ahead, compared to less than 2% that anticipate a contraction,” Bhandari said.

Despite the upturn in input demand, suppliers to the Indian manufacturing industry were generally able to deliver materials in a timely manner. Lead times shortened for the thirteenth successive month, albeit to the second-least degree over this period.

Meanwhile, pre-production inventories rose sharply in March, and at the quickest pace in five months. March data showed that capacity pressures among manufacturers remained mild. Outstanding business rose at a marginal pace that was slower than in February. In turn, recruitment drives were reigned in. Employment nevertheless rose at solid rate in the context of survey data.

Amid reports of higher prices for copper, electronic items, leather, LPG and rubber, cost burdens rose further. The overall rate of inflation accelerated to a three-month high, but was well below its long-run average. Conversely, there was a softer increase in prices charged for Indian goods. March's rise was moderate and the weakest in exactly one year. Favourable demand conditions, better customer relations and projects pending approval underpinned upbeat forecasts for output levels in the coming 12 months.