A worker makes a metal filter plate inside an industrial manufacturing unit on the outskirts of Ahmedabad.
| Photo Credit: Reuters

Growth in new orders and output eased slightly at Indian factories during July, even as firms raised selling prices at the highest pace in almost 11 years amid a significant spike in input costs that accelerated at a two-year high rate, as per the HSBC India Manufacturing Purchasing Managers’ Index (PMI).

The seasonally adjusted PMI inched down from 58.3 in June to 58.1 in July. A reading of over 50 on the index signals a rise in activity levels.

Also Read: June PMI signals manufacturing recovery, fresh hires at 19-year high

“The continuous increase in the output price index, driven by input and labour cost pressure, may signal further inflationary pressure in the economy,” averred HSBC chief India economist Pranjul Bhandari.

International sales grew at the second-fastest clip in over 13 years, with firms among the 400 entities surveyed for the index reporting stronger demand from clients in Asia, Europe, North America and the Middle Ease.

About 7% of surveyed firms reported an uptick in hiring, with both permanent and short-term hires taken on board, but 92% reported no change in staff head count. The pace of job creation dropped below June’s levels although this was still one of the strongest increases in hiring levels in the survey’s history, said S&P Global Market Intelligence, the firm that compiles the PMI.

Apart from a rise in costs of inputs like coal, leather, packaging, paper, rubber and steel, manufacturing firms also reported higher labour costs and strong demand as factors for raising output charges. At the same time, with new orders continuing to show robust growth, goods producers piled up on inputs in July, with a quarter of the surveyed firms reporting higher input stocking than June.

Despite key metrics’ persistent resilience, the overall level of positive sentiment towards the year-ahead outlook for production was broadly unchanged since June, when it had slipped to a three-month low. About 29% of firms had said they expected output to grow over the year ahead in June. The latest survey is silent on what this proportion was in July.

“India’s headline manufacturing PMI showed a marginal slowdown in the pace of expansion in July, but with most components remaining at robust levels, the small drop is no cause for concern,” Ms. Bhandari noted.

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.