India's Manufacturing PMI experiences 16-year high

India's manufacturing sector exhibited remarkable strength in March, according to a recent survey, fueled by robust production and sales. The HSBC India Manufacturing Purchasing Managers’ Index (PMI), adjusted for seasonal variations, soared to an impressive 59.1, marking a 16-year peak, compared to 56.9 in February. This uptrend signifies the 33rd consecutive month of growth in manufacturing output. In PMI terminology, a reading above 50 indicates expansion, while a score below 50 signifies contraction. Notably, the HSBC manufacturing PMI stood at 56.9 in February and 56.5 in January, bouncing back from a low of 54.9 in December, which marked an 18-month low.

The latest survey reveals India’s manufacturing sector experiencing significant momentum in March, driven by strong production and sales. March saw the HSBC India Manufacturing Purchasing Managers’ Index (PMI) climbing to a remarkable 59.1, reaching its highest level in 16 years, compared to 56.9 in February. This sustained upward trajectory marks the 33rd consecutive month of expansion in manufacturing output. In the language of PMI, a figure exceeding 50 indicates expansion, while anything below suggests contraction. It's worth noting that the HSBC manufacturing PMI stood at 56.9 in February and 56.5 in January, rebounding from a recent low of 54.9 recorded in December, which was the lowest point in 18 months.

 “The HSBC India PMI climbed to a 16-year high on the back of the strongest increases in output and new orders since October 2020, parallel to the second-sharpest upturn in input inventories in the history of the survey. Employment returned to positive territory and firms scaled up buying levels…The notable improvement in operating conditions reflected stronger growth of new orders, output and input stocks as well as renewed job creation,” the PMI report said.

Despite the positive outlook, the survey highlighted a slight increase in cost pressures during March, reaching the highest level in five months. Responding companies noted elevated expenses for various materials including cotton, iron, machinery tools, plastics, and steel. However, the rise in selling prices remained subdued, with producers opting for minimal increases over the past year, prioritizing customer retention amidst competitive market conditions.

Regarding the outlook for the manufacturing sector, the survey results provided a mixed picture as new product orders and strong demand provided support but inflation concerns weighed over the sentiment. “Companies remained confident on average, with 28% forecasting output growth in the year ahead and 1% expecting a contraction. Planned marketing, new product enquiries and buoyant demand were all cited as reasons for optimism. The overall level of sentiment remained elevated, but slipped to a four-month low as inflation concerns weighed on confidence,” the report said.

The HSBC India Manufacturing PMI is compiled by S&P Global from responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers. The panel is stratified by detailed sector and company workforce size, based on contributions to GDP.

Growth picked up across the consumer, intermediate and investment goods sectors. Among new orders, the steepest expansion in production was seen for investment goods makers. “India’s March manufacturing PMI rose to its highest level since 2008. Manufacturing companies expanded hiring in response to strong production and new orders. On the back of strong demand and a slight tightening in capacity, input cost inflation picked up in March,” Ines Lam, Economist at HSBC said.

March witnessed the most rapid growth in new orders in nearly three and a half years, driven by reports of strong demand. Additionally, new export orders surged at their quickest pace since May 2022. The influx of new work showed improvement from both domestic and export markets, notably fueled by enhanced sales to regions including Africa, Asia, Europe, and the United States.