India's factory growth hits 7 month high in September, thanks to demand and hiring boost

Factory growth hits 7-month high, PMI rises to 55.1

India’s manufacturing activity scaled up sharply in September, as stronger demand pushed up sales and production, while companies stepped up hiring and stock-building.The seasonally adjusted HSBC India Manufacturing Purchasing Managers’ Index (PMI) rose to 55.1 in September, from 52.8 in August, marking the strongest improvement in the sector’s health in seven months.

A PMI reading above 50 indicates expansion, while a reading below 50 signals contraction.The recovery in factory activity was supported by both domestic and overseas demand. Stronger new orders helped drive production higher, with demand across electronics, food, pharma and textiles taking total sales growth to its highest level since February.Export orders also gained momentum during the month, with manufacturers reporting increased business from clients in Brazil, Europe, the UAE and the US."India's factory sector ended the quarter on a firmer footing. The PMI rose to 55.1 in September, up from 52.8, as stronger domestic and overseas demand lifted sales and production. Hiring resumed at its fastest pace since May, and manufacturers became more optimistic about the months ahead," Pranjul Bhandari, chief India economist at HSBC, told PTI.The improvement in demand was accompanied by a renewed increase in factory employment.

After a blip in August, job growth resumed in September, with the pace of employment expansion described by panellists as solid and the strongest since May.Manufacturers also became more confident about the months ahead. Output forecasts were upgraded during September, taking overall positive sentiment to a four-month high. The outlook was supported by a healthy pipeline of new enquiries and expectations that strong demand would continue.The expectation of higher future sales also prompted companies to increase their purchases of materials and build inventories. Overall buying activity expanded at a faster pace than in August."Companies bought more materials and built up stocks to prepare for anticipated sales. Finished goods inventories recorded their second-largest increase in nearly 12 years, signalling a clear shift from leaner stock levels," Bhandari said.Finished goods inventories rose for the third consecutive month. The increase was the second-fastest in 11-and-a-half years, behind July, as manufacturers actively accumulated stocks in anticipation of stronger demand.At the same time, companies faced quicker increases in input costs and selling prices. Despite the acceleration, the rates of inflation remained mild by historical standards.The September reading came as manufacturing activity regained momentum after the slower expansion recorded in August, with the PMI rising by more than two points during the month."Holdings of finished products increased for the third month in a row and at the second-fastest pace in 11-and-a-half years (behind July)," the report said.The HSBC India Manufacturing PMI is compiled by S&P Global based on responses from purchasing managers at around 400 manufacturers.