India manufacturing growth slows in October as export orders strengthen

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India manufacturing growth slows

Highlights

HSBC's India Manufacturing PMI falls to 54.7 in October from 55.1 in September, signaling softer domestic demand while staying above growth threshold.
Export orders accelerate at the fastest pace in six months, but new domestic orders pull back from a seven-month high and output growth slows.
Manufacturers build finished goods inventories at a record pace while raw material purchasing growth slows and input cost inflation hits its lowest since February.

October PMI signals softer domestic demand

As reported by Reuters, HSBC's India Manufacturing Purchasing Managers' Index falls to 54.7 in October from 55.1 in September, below a preliminary estimate of 54.9, while remaining above the 50.0 threshold that indicates growth.

New orders, a key measure of demand, pull back marginally from September's seven-month high. Export orders are a brighter spot, accelerating at the fastest pace in six months, while output also loses some ground.

Manufacturers build finished goods inventories at a record pace in the survey's more than 21-year history, citing buoyant demand and efforts to avoid shortages. At the same time, growth in raw material purchases slows to the weakest level in a 64-month expansion sequence, pointing to caution over the demand outlook rather than clear preparation for stronger sales ahead.

Hiring, costs and confidence show mixed signals

Factory employment expands for a second month in October, but the pace slows from September as capital goods producers cut staff. Business confidence also edges lower and, although broadly in line with levels seen through much of the past year, remains below its long-run average.

HSBC chief India economist Pranjul Bhandari says producers also raise input inventories to the greatest extent in eight months, building precautionary buffers against possible shortages and to meet production needs in a volatile global environment.

Input cost inflation eases to its lowest level since February. Selling price increases also slow to their weakest pace in nearly four years, suggesting manufacturers have limited pricing power.

Our earlier report on India’s September merchandise trade deficit highlighted a wider gap as imports outpaced exports, with the higher import bill partly linked to elevated crude oil prices. The piece also noted India’s push to diversify export markets through new and progressing trade agreements, while warning that persistently high commodity costs could keep pressure on the country’s external balance.

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