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Business, Equities, Market News, Markets - January 8, 2025

India's Manufacturing Sector Hits 12-Month Low in December

India’s Manufacturing Sector Hits 12-Month Low in December

India’s manufacturing sector recorded a 12 month low growth in December due to slow down growth in factory orders and expansion of production. It is also due to increased competition and price pressures on the operations of the sectors.

India’s Purchasing Managers’ Index (PMI)
The HSBC PMI compiled by S&P Global states that in the month of December PMI tone down to 56.4 from 56.5 in the month of November. It indicated a muted improvement in operational conditions. Despite the fall in December, the average PMI for the year 2024 increased to 57.5 from its earlier average record of 56.8 in the year 2023. It implies that even after falling from 56.5 in the month of November, it remained above its average growth in the long-run of 54.1, indicating a strong rate of growth. In the second quarter of the fiscal year 2025 recorded a slow growth in the manufacturing sector. In the September quarter, it fell to 2.2 percent against 14.4 percent in the previous quarter of the same period and 7 percent in the June quarter.

In the September quarter, India’s GDP growth slowed down to 5.4 percent. In the first quarter of the fiscal year 2025, India’s GDP growth was around 6.7 percent compared to 8.2 percent in the same period of the previous year.

Despite the joint-slowest in a year which is equal to September growth rate, the latest expansion is certainly sharp. The survey’s qualitative data hints that growth was mainly hampered due to competition and price pressures. Also, the output levels increased at a substantial pace even in the situation of slowest growth in the year 2024. This was mainly due to favorable demand acting as the main determinant of production growth.

As per the data of the month of December, the sector observed the least extent of improvements in the year 2024 in the situation of slower rise in output, new orders and purchase stocks. The growth rates remain substantial and aided in giving support to expansion in purchase and employment levels. The survey also stated that cost pressures went mild due to fall in cost burdens, however inflation in prices charged on consumers remains historically high.

This survey is formulated on the basis of the responses collected from the questionnaires given to 400 firms in the manufacturing sector and 50 point mark threshold which separates expansion from contraction.

The Economist at HSBC Ines Lam states that the Indian manufacturing sector ended the strong year 2024 with signs of moderate cooling trend. The new orders observed the slowest rate of expansion in the year, indicating weaker growth in future production. Despite this, the new export orders observed a rise in growth at faster speed from the month of July. Although an increase in overall prices of input has tone down slightly, the cost pressures on Indian manufacturing firms is still high. In the month of December , the input costs kept on rising due to firms recording an increase in container, material and labour costs. While the selling price was high due to firms continuously raising selling prices at a faster rate for the last 11 years. This is the reason for customers facing hiking in prices higher than the range of rise in cost pressures.

Impact on employment levels and infrastructural output
In case of employment levels, the sector observed a rise in job creation level for the 10th month in a row. Also the rate of employment level is the most rapid in four months. It accounts to one out of the ten companies employing extra employees compared to less than 2 percent of the firms that are doing layoffs. It is quite significant that infrastructural output in India, which accounts for about two-fifths of industrial production, observed a surge to a four-month high in the month of November. As per the data released, the reason for this was due to a rise in six out of the eight core constituent sectors during the month.

Other aspects such as level of input inventories, purchasing growth and smaller lead times supported the monthly rise in growth. Sharp accumulation level was observed, but the weakest since December 2023.

Perspective of the Manufacturing firms
The outlook of manufacturing firms is optimistic in terms of rise in output levels. This optimism can be seen in advertisements, investment and expectation of favorable demand. However, this perspective is certainly affected by concerns such as inflation and competitive pressures.

While the manufacturing sector hit a slump to a 12-month low in December, service sector has significantly regained momentum in the last month after facing a mild moderation in the month of November. This is due to new orders and output levels rose to a four month high in service sector activity.

The image added is for representation purposes only

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India's Manufacturing Growth Slows in August, PMI Hits 3-Month Low at 57

India’s Manufacturing Growth Slows in August, PMI Hits 3-Month Low at 57

In August, companies reported weaker growth in output and new orders, which brought the expansion of India’s manufacturing sector to a three-month low. According to HSBC’s most recent data, which was made published on Monday, the Purchasing Managers’ Index (PMI) fell from 58.1 in July to 57.5 in August. Even if the sector’s growth is still good, this fall signals that it is losing some of its movement. Increase is indicated by an index number higher than 50.

Softer Growth in New Orders and Output: The August report makes clear that the rate of growth in new business and production for Indian manufacturers decreased. When compared to historical averages, the expansion rates are still substantial despite this slowdown. The poll indicates that while companies are still growing, the rate of growth has slowed. Some businesses have blamed the slower pace on intense competition, which has been linked to this in part. Regarding output, although production levels remained elevated, the growth rate decelerated to its lowest point since January of this year. While demand wasn’t as high as it had been in prior months, some businesses pointed out that technological investments and increased sales volumes helped maintain production levels.

Impact on the International Market and Reduced Demand: According to the poll, the two main measures of demand output and new orders reached their lowest points in seven months. While still healthy overall, international demand grew at its slowest rate since January. This implies that although the industry is still growing, it is not doing so as quickly as it formerly did on a national and worldwide level.

Focussing on the current situation, HSBC Chief India Economist Pranjul Bhandari noted that output and new order patterns closely followed the PMI’s overall trend. According to Bhandari, the industry is still performing well by historical standards, but several companies blamed the decline on intense competition.

Price inflation remains despite easing cost pressures: A moderating of cost pressures was one of the report’s good observations from August. The rate of inflation for input prices decreased to its lowest level in five months, enabling businesses to expand their purchasing. The rapid inflation of output prices faced by manufacturers persisted, almost matching the 11-year peak reached in July, even with the slower increase in expenses. This indicates that, mainly as a result of consistently high demand, businesses were still charging more to their customers even if it was cheaper for them to create the items.

Although there was an obvious decrease in input costs, Bhandari clarified that the inflation of output prices slowed down considerably less sharply. Because of this, producers were able to raise their profit margins by charging customers for extra expenses.

Effect on the RBI’s Interest Rate Outlook and Employment: According to the poll, employment growth in the manufacturing sector has slowed for the past two months. In spite of this, businesses kept adding new employees for the sixth consecutive month, propelled by high demand and hope for the future of their businesses. Nonetheless, when several businesses lowered their headcounts at the middle of the second fiscal quarter, the labour market appeared to be tightening.

The main cause of India’s July inflation rate drop, which was nearly five years below the previous record of 3.54%, was a substantial base impact.  Due to the decline in inflation, economists forecast that the Reserve Bank of India (RBI) would cut interest rates by 25 basis points in the upcoming quarter. A rate reduction is anticipated to contribute to economic stimulation and partially overcome the manufacturing sector decline.

Prospects for the Manufacturing Industry in the Long Run: Considering the difficulties encountered in August, the Indian manufacturing sector has grown for 38 months running since July 2021. The industry is still growing, but there are underlying issues that need to be resolved, as seen by the PMI’s drop from the flash estimate of 57.9 to 57.5.

Softer demand, increased competition, and rapid price inflation all point to the reality that manufacturers will face challenging conditions in the months to come. But with the possibility of an RBI rate decrease as well as ongoing investments in efficiency and technology, the industry might be able to maintain growth even in more difficult economic times.

In summary, the development trajectory of the Indian manufacturing sector has slowed, but it is still growing. The months ahead will be critical as businesses adapt to shifting market conditions and authorities think through ways to encourage sustained economic growth.

The image added is for representation purposes only

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