Factory activity at 11-month low in November amid cost pressure

The HSBC India Manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, stood at 56.5. It had picked up pace in October with a reading of 57.5 from 56.5 in September. In November 2023, the PMI reading was 56.

Despite the decline, the growth rate remained above its long-run average. A PMI reading above 50 signals expansion, while a reading below indicates contraction.

“Strong broad-based international demand, evidenced by a four-month high in new export orders, fuelled the Indian manufacturing sector’s continued growth,” said Pranjul Bhandari, chief economist at HSBC.New business orders showed a weaker but still robust growth in November, the survey showed.

Favourable demand conditions supported this growth, with challenges from competition and price pressures, it said.

Selling prices or charge inflation hit an 11-year high, while input cost inflation was the highest since July, although still below its long-run average.

“Input prices for a variety of intermediate goods, including chemicals, cotton, leather, and rubber, rose in November, while output prices soared to an eleven-year high as rising input, labour and transportation costs were passed on to consumers,” said Bhandari.

In October, India’s retail inflation had soared to a 14-month high of 6.21%, above the RBI’s tolerance band, mainly on account of rising food prices. It was 5.49 % in September.

While domestic sales were impacted by cost pressures, new export orders gained momentum.

“The rate of expansion in international demand was the best seen for four months, with panellists reporting gains from Bangladesh, mainland China, Colombia, Iran, Italy, Japan, Nepal, the UK and the US,” the survey mentioned.

Manufacturing was one of the primary contributors to the slowdown in India’s gross domestic product (GDP) growth of 5.4% in July-September, marking a seven-quarter low, according to the official data released last week.

Meanwhile, factory employment rose for the ninth consecutive month in November, with both permanent and temporary roles being filled. Although job creation slowed slightly from October, it remained solid, according to the survey.

Business optimism was fuelled by expectations that marketing initiatives and new product releases will yield positive results, it said. “Capacity expansion efforts and forecasts of demand strength also underpinned upbeat forecasts for output in 2025,” said HSBC India in the report.