Image used for representative purpose only
| Photo Credit: E. Lakshmi Narayanan

Manufacturing activity dropped to a three-month low in August, with new factory orders growing at the slowest pace in seven months and export orders clocking their weakest rise in 2024, even as inflation and competitive pressures dragged producers’ optimism to the worst level since April 2023, as per a private survey-based index.

The seasonally adjusted HSBC India Manufacturing Purchasing Managers’ Index (PMI) dropped to 57.5 in August from July’s reading of 58.1. A reading of over 50 on the index, compiled on the basis of inputs from about 400 manufacturing firms, signals a rise in activity levels.

Factories’ output grew at the mildest pace since this January, with a few companies attributing this to fierce competition and shifts in consumer preferences. Consequently, job creation softened midway through the second fiscal quarter as a few firms also trimmed employee headcounts, the survey showed.

On the bright side, the inflation in manufacturing input costs cooled to a five-month low, prompting firms to use the opportunity to scale up stocking efforts even as they continued to raise selling prices.

“Despite the slowdown in cost pressures, there was a marked increase in prices charged for Indian goods in August. The rate of inflation was the second-fastest in close to 11 years. Firms reportedly shared additional cost burdens with their clients amid demand resilience,” said a note from S&P Global, which conducts the PMI surveys.

Firms piled up on raw material inventories at the strongest pace ever in the 19 and a half years, ostensibly to protect operations from input shortages. The rate of input buying growth was the strongest since April, S&P Global said.

Noting that the pace of expansion in the manufacturing sector moderated slightly in August, HSBC chief India economist Pranjul Bhandari said that some PMI panellists cited fierce competition as a reason for slowdown.

“On a positive note, the rise in input costs slowed sharply… The pace of output price inflation also decelerated, but the deceleration was to a much smaller extent, thereby increasing margins for manufacturers,” she noted.