India’s manufacturing sector growth in December 2023, measured by the HSBC India Manufacturing Purchasing Managers’ Index (PMI), registered an 18-month low of 54.9 in December, with growth reportedly curbed by fading demand for certain types of products.
In a similar vein to the trend for output, new orders placed with Indian manufacturers rose sharply but to a lesser extent in December. The pace of expansion was the slowest seen in a year-and-a-half. According to the seasonally adjusted HSBC India PMI data, a general lack of pressure on the capacity of manufacturers at the end of the third fiscal quarter was evidenced by only a marginal uptick in outstanding business volumes.
Pranjul Bhandari, Chief India Economist at HSBC notes that India’s manufacturing sector continued to expand in December, although at a softer pace, following an uptick in the previous month. Growth of both output and new orders softened, but on the other hand, the future output index rose since November. Rates of increase in input and output prices were broadly unchanged,” Bhandari said.
With regards to stocks, the latest results showed a further increase in input holdings alongside another decline in inventories of finished products. The latter was attributed to the fulfilment of orders from warehoused items. The key determinant of rising input inventories was a sustained increase in buying levels. Quantities of purchases expanded throughout the latest two-and-a-half years. The pace of growth seen in December was sharp, albeit the slowest since November 2022.
Though the expansion in manufacturing activity fell from 56.0 in November, the sector’s performance remained above the critical threshold of 50, which signifies expansion and has been maintained for the 30th consecutive month. However, the rate of expansion softened to the weakest since October 2022 even as it remained above its long-run average.
Despite the loss of growth momentum, the sector still expanded strongly in December on the back of softer, albeit sharp, increases in factory orders and output, while business confidence towards the year-ahead outlook strengthened. Encouragingly, input costs rose at the second-slowest rate in nearly three-and-a-half years and charge inflation softened to a nine-month low.
There was indication of a marked improvement in the health of the sector with new business gains, favourable market conditions, fairs and expositions collectively inducing another sharp increase in manufacturing production during December. December data showed a 21st consecutive increase in international order receipts at goods producers in India. Companies noted gains from clients in Asia, Europe, the Middle East and North America. New export sales expanded at a moderate pace that was the joint-slowest in eight months.
Goods producers signalled a further uptick in purchasing costs at the end of the 2023 calendar year. Among the items reported to have been up in price were chemicals, paper and textiles. Little-changed from November, however, the rate of inflation was negligible by historical standards and was the second-weakest in just under three-and-a-half years. For the fourth month in a row, the rate of charge inflation surpassed that of input prices. Survey participants that hiked their fees in December mentioned the pass-through of recently absorbed cost burdens to clients.
The year-ahead outlook for production, shows Indian manufacturers at their most upbeat for three months. Anecdotal evidence highlighted advertising, better customer relations and new enquiries as the main factors boosting business confidence in December.
