India posts slowest manufacturing growth since December 2023

Despite this, expansion in production and sales remained robust.

India's manufacturing sector has recorded its slowest growth rate since December 2023, with the seasonally adjusted HSBC India Manufacturing Purchasing Managers’ Index (PMI) tallying a score of 56.3 in February - a decrease from the previous month's 57.7.

Despite this, expansion in production and sales remained robust compared to the historical context of the survey, which spans over two decades.

Still, it is indicative of considerable improvement in the sector's overall health. Business conditions showed improvement across all three monitored sectors: consumer goods, intermediate goods, and investment goods. Production continued its upward trajectory, marking the 44th consecutive month of growth. Companies noted consistent demand, investments in technology, and the initiation of new projects, although the pace of expansion saw a slight decline from the previous month.

Positive domestic and international demand prompted businesses to increase their purchasing activities and hire additional staff at rates exceeding the norm. However, the heightened demand contributed to sustained inflation in charges, even as cost pressures softened.

Notably, February data revealed a 44th consecutive increase in new business, driven by strong client demand and competitive pricing strategies. While the growth rate slowed to its weakest since December 2023, it remained above the long-term average. Additionally, manufacturers experienced a significant uptick in new export orders, continuing to leverage global demand for their products, though the pace was slower than January’s near 14-year high.

To accommodate the rise in new orders, manufacturers expanded their workforce for the twelfth consecutive month, marking the second-highest job creation rate on record. One in ten companies reported increased recruitment, while only a small fraction downsized their workforce. Purchasing activities also ramped up, although the growth rate fell to a 14-month low. Companies attributed their purchasing to strong client interest, enabling them to rebuild their inventories in preparation for potential input shortages.

Despite facing increased input costs—particularly for materials such as bamboo, leather, rubber, and telecommunications—the overall inflation rate eased for the third consecutive month, reaching its lowest level in a year. Although the rate of charge inflation remained high, businesses maintained optimism about future growth, expecting sustained client demand to underpin production levels.

Pranjul Bhandari, Chief India Economist at HSBC, commented on the robust performance, citing the PMI score of 56.3 as a sign of resilience. He noted the optimistic outlook amongst manufacturers, with many anticipating increased output in the coming year, despite a slight decline in growth momentum. Overall, February indicated a continued positive trajectory for India's manufacturing sector.