India's factory PMI eases to 54.7 in October, but export orders grow at six-month high

Growth in India's manufacturing sector cooled slightly in October, but strong overseas demand pushed export orders up at their fastest pace in six months, according to a closely watched business survey released on Monday.

The HSBC India Manufacturing Purchasing Managers' Index, compiled by S&P Global, came in at 54.7 in October, down from 55.1 in September. The final reading was also a little lower than the flash estimate of 54.9 published last month. A reading above 50 indicates expansion, and October's figure remained comfortably above that line as well as above the survey's long-run average.

Exports provide a lift

New orders continued to rise sharply, though the pace of growth slowed from September, when it had touched a seven-month high. Output also expanded at a solid rate, led by makers of intermediate goods.

The strongest signal came from abroad. New export orders grew at the quickest rate in six months, with firms reporting higher demand from markets including the United States, the United Kingdom, the UAE and Saudi Arabia. Companies credited new client wins, marketing efforts and favourable demand trends.

Pranjul Bhandari, chief India economist at HSBC, said strong international demand had supported a robust rise in output.

Price pressures ease, confidence dips

On the cost side, the survey showed welcome relief. Input cost inflation fell to its lowest level since February, and the rise in prices charged by manufacturers was the weakest in nearly four years. Softer price pressures in factories could be good news for consumers, as they suggest firms are passing on smaller increases.

Hiring continued for a second straight month, but the pace of job creation remained modest. Stocks of finished goods rose sharply as firms built inventories, and holdings of inputs climbed to an eight-month high.

Business confidence, however, weakened from September and stayed below its long-run average. Only about 18 per cent of manufacturers said they expected output to rise over the next 12 months.

Why it matters

The PMI is one of the earliest indicators of the health of India's economy each month. October's reading, along with record UPI transactions and a 22.9 per cent rise in GST collections reported over the weekend, points to continued momentum in activity during the festive season. Easing input costs may also help keep inflation in check, a key factor for the Reserve Bank of India's interest rate decisions.