Indian Private Sector Activity Accelerates to 3-Month High on Manufacturing Surge

India’s private sector activity grew at its fastest rate in three months in September, propelled by a significant rebound in the manufacturing sector. The HSBC Flash India Composite PMI Output Index, a key gauge of economic health, rose to 56.5 from 54.3 in August, moving further above the 50-point mark that separates growth from contraction, according to a business survey released Wednesday.

Manufacturing Drives Growth

The upturn was led by a robust performance in the manufacturing industry. The flash manufacturing PMI climbed to 55.7 from 52.8, its strongest reading in seven months, while the manufacturing output sub-index jumped to 58.2 from 54.8. The services sector also saw faster growth, with its business activity index increasing to 55.8 from 54.1.

According to the survey, manufacturers reported that renewed tensions in the Middle East prompted firms to increase their inventory buffers. This strategic stockpiling pushed holdings of finished goods to an 11-and-a-half-year high and boosted input purchasing to its highest level since February. The growth was also supported by a seven-month high in domestic sales growth, with strong demand noted for electronics, food, and pharmaceuticals.

Inflation and Export Pressures

While headline growth was strong, the report highlighted a mixed inflation picture and slowing foreign demand. Key points include:

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• Input Costs: Inflation for input materials eased to its lowest level since January, as softer cost pressures in the services sector offset a rise for manufacturers.
• Selling Prices: Factory-gate price inflation accelerated, but services firms raised their charges at a slower pace, leaving overall selling-price inflation broadly unchanged.
• Exports: New export orders continued to grow but at the slowest pace in nearly three years, as weaker growth in services exports outweighed a marginal acceleration in manufacturing shipments.

Outlook and Employment

Despite some headwinds, businesses showed increased optimism about the future. Business confidence regarding output over the next 12 months rose to a four-month high, with sentiment improving across both manufacturing and services.

In a positive sign for the labor market, employment increased solidly across the private sector. The pace of job creation was reportedly similar in both the manufacturing and services industries, indicating a broad-based expansion in hiring.