Image used for representational purpose.
| Photo Credit: Reuters

India’s factory activity levels dropped to a three-month low in May, with output levels easing due to the heat wave that led a reduction in working hours amid intensive heat and a rise in production costs that flared up to a level only experienced once over the previous 21 months, as per the HSBC India Manufacturing Purchasing Managers’ Index (PMI).

The seasonally adjusted index, that reflects an uptick in activity levels when its score is over 50, declined from 58.8 in April to 57.5 in May.

Also read | Industrial output slows to 4.9% in March

Fresh orders for factories moderated to the lowest level since February, with election-related disruptions and competition affecting domestic demand sources, even as export orders grew at the fastest pace in over 13 years, as per the findings of the survey-based PMI. Despite the moderation, new orders and output rose at a substantial pace, the index statement noted.

While input costs and output charges headed north, producers expressed the highest level of positive sentiment towards growth prospects in nearly nine-and-a-half years, partly based on expectations that economic and demand conditions will remain favourable. This optimism triggered a nearly 19-year high for job creation in factories surveyed by S&P Global for compiling the PMI.

“Ongoing strong sales performances combined with upbeat growth forecasts fuelled job creation in May. Manufacturing employment rose to one of the greatest extents seen since data collection started in March 2005,” the statement said.

Jobs growth, parallel to rising material and freight costs, underpinned a quicker increase in input costs at goods producers. The overall rate of inflation remained below its long-run average, but picked up to its joint-highest since August 2022,” the PMI release stated.

Reacting to the rise in operating expenses, firms raised own selling prices in May at a pace that was the fastest in eight months. However, this price hike only constituted part of the surge in production costs leading to a squeeze in margins for manufacturers, HSBC’s global economist Maitreyi Das pointed out.

“The manufacturing sector remained in expansionary territory in May, albeit the pace of expansion slowed, led by a softer rise in new orders and output. Panellists cited heatwaves as a reason for lower work hours in May, which may have affected production volumes,” Ms. Das said.

A reading of over 50 on the PMI, which rose from 56.5 in January to 56.9 last month, indicates an expansion in activity. File.
| Photo Credit: B. Velankanni Raj

India’s manufacturing sector continued its recovery in February from an 18-month low in December, with production levels and sales rising at the fastest pace in five months, as per the seasonally adjusted HSBC India Manufacturing Purchasing Managers’ Index (PMI).

A reading of over 50 on the PMI, which rose from 56.5 in January to 56.9 last month, indicates an expansion in activity. New export orders grew at the highest pace in 21 months, but employment levels changed little as firms felt existing staff strengths were enough to cope with the workload.

“The upturn in manufacturing output was the strongest seen for five months and led by the capital goods category… [However] capacity pressures at goods producers in India remained mild [and] the uptick was softer than that registered in January,” a statement on the survey-based index noted.

Output price increases slowed down to their joint-weakest since March 2023, while input cost rose only fractionally at the weakest rate since July 2020.

“Qualitative evidence highlighted higher prices for iron, paper and plastics parallel to reductions for cotton and steel,” the statement said. About 8% of the surveyed firms which raised prices referred to the need to pass on higher freight, material and wage costs to clients.

Keeping in mind increased demand, firms tanked up on raw materials, lifting stocks of purchases at the fastest rate since August 2023.

“February survey data indicated sustained optimism among manufacturers regarding the year-ahead outlook for production. The overall level of confidence was the second highest since December 2022,” the PMI note concluded.

“Production growth continued to be strong, supported by both domestic and external demand. Manufacturing firms’ margins improved as input price inflation slipped,” said Ines Lam, economist at HSBC, attributing businesses’ optimistic outlook to these two factors.