India manufacturing PMI hits 7-month high in September as demand, hiring pick up

India’s manufacturing sector regained momentum in September, with factory activity expanding at its fastest pace in seven months, driven by stronger domestic and export demand.

The seasonally adjusted HSBC India Manufacturing Purchasing Managers’ Index (PMI) rose to 55.1 in September from 52.8 in August, marking an increase of more than two points and signalling a sharper improvement in operating conditions across the sector. A PMI reading above 50 indicates expansion, while a reading below 50 points to contraction.

New orders, output drive factory activity

The September improvement was led by stronger new orders and output, with robust demand across sectors such as electronics, food, pharmaceuticals and textiles. Total sales growth rose to its highest level since February.

Export orders also increased at a faster pace, with manufacturers reporting stronger demand from customers in Brazil, Europe, the UAE and the US.

“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. Hiring resumed at its fastest pace since May, and manufacturers became more optimistic about the months ahead,” Pranjul Bhandari, chief India economist at HSBC, said.

Hiring resumes at fastest pace since May

The stronger demand environment also encouraged manufacturers to increase hiring in September. Employment growth resumed after slowing in August, with the pace of job creation reaching its strongest level since May.

Firms also increased their purchases of raw materials and other inputs to meet production requirements and build inventories. Overall input buying expanded at a faster pace than in August. “Companies bought more materials and built up stocks to prepare for anticipated sales. Finished goods inventories recorded their second-largest increase in nearly 12 years, signalling a clear shift from leaner stock levels,” Bhandari said.

Manufacturers turn more optimistic

Business confidence among Indian manufacturers improved in September, with overall sentiment reaching a four-month high. The improvement was supported by a healthy pipeline of new business inquiries and expectations of sustained demand in the months ahead.

Manufacturers also stepped up inventory building in anticipation of stronger sales. Finished goods inventories increased for the third consecutive month and at the second-fastest pace in 11-and-a-half years, behind July.

On the price front, both input costs and selling prices increased at a faster pace in September. However, the rates of inflation remained relatively mild by historical standards.