How did India’s manufacturing sector perform in September 2023 amid the slowdown in global factory activity?

The S&P Global India Manufacturing Purchasing Managers’ Index (PMI) marked a healthy expansion of 57.5 for September 2023, even as the metric retreated from a 3-month high of 58.6 in the August report.

The September report registered a 5-month low amid a slowdown in new orders.

Even so, this marks the 27th consecutive month that the manufacturing gauge has remained in expansionary territory, i.e., above 50, and is well above the long-term average of 53.9.

The most recent contraction was recorded in June 2021 in the midst of the global pandemic response at 48.1.

However, the current reading was below expectations as per analysts at Investing.com who had projected a number closer to 58.1 for the country’s factory activity.

Source: S&P Global

Data release

Pollyanna De Lima, economics associate director at S&P Global Market Intelligence, noted,

India’s manufacturing industry showed mild signs of a slowdown in September, primarily due to a softer increase in new orders which tempered production growth. Nevertheless, both demand and output saw significant upticks…

New orders, which make up much of the index did moderate but continued to remain well above historical levels owing to,

…favourable demand trends, positive market dynamics, and fruitful advertising.

Much of the broader push in demand came from export businesses across Asia and Europe, even as this segment declined from its 9-month high.

Source: S&P Global PMI

Encouragingly, the rate of inflation for goods production reached near a three-year low, following the Wholesale Production Index for August 2023 which came in at (-)0.52% YoY.

However, respondents noted that certain crucial inputs such as copper , electronic components, foodstuff, iron, and steel, continued to face an uptick in price.

This dynamic has prompted many firms to look to replenish stocks and prepare for potential raw material shortages.

In the meantime, output prices rose at a faster rate than the long-run average, even as retail inflation eased but stayed above the Reserve Bank of India’s tolerance band at 6.83% YoY for the previous month.

In July 2023, retail inflation had ballooned to 7.4% YoY owing to weather-related disruptions and food inflation.

Sentiments of surveyed manufacturers were largely positive, reaching a year-to-date high and fuelled by surging customer appetite and expanded capacities.

Although several analysts project a global economic slowdown, survey respondents expect demand for Indian manufacturing to rise over the coming 12 months, which in turn will continue to benefit job creation, particularly ahead of the festive season.

In addition, backlogs showed some improvement, even as suppliers’ delivery times fell marginally.

Despite the overall health of the sector and the robust trend over the past year, De Lima cautioned,

However, while robust demand was supportive of production growth, it added to price pressures in September. The solid increase in output charges signaled by the PMI data, which occurred in spite of a notable retreat in cost pressures, could restrict sales in the coming months.

Indian outlook

In its October meeting which commences tomorrow, the Reserve Bank of India is expected to maintain the policy rate while heading into the festive season.

Its stance which is geared towards the withdrawal accommodation is likely to remain unchanged in this meeting, particularly as global oil prices continue to remain elevated.

Over a longer-term horizon, analysts at TradingEconomics.com expect that India’s Manufacturing PMI will continue to stay in positive territory but trend closer to 53.40 in 2024.

In a press conference last month, Chief Economic Advisor to the Government of India, Dr. V. Anantha Nageswaran noted that movements in high-frequency indicators such as the manufacturing PMI can sometimes distract from the underlying strength of the sector.

Accordingly, he maintained an FY24 forecast for economic growth of 6.5% YoY.

Global manufacturing continues to struggle

The continued expansion in India’s manufacturing space is impressive given the marked slowdown in global manufacturing growth.

On Monday, October 2nd, the JPMorgan (NYSE: JPM ) Global Manufacturing PMI published by S&P Global revealed that the sector remained in contractionary territory even though it edged higher to 49.1 in September 2023 from 49.0 in the August 2023 report.

The weakness on the global stage is a sign of slowing demand amid recessionary fears, and marked the 13th consecutive below-50 reading.

Source: J.P.Morgan, S&P Global

In particular, Europe, the UK, and Japan continued to see steep falls in factory activity.

Global manufacturing output fell to 49.7 from 49.9 in August 2023, while new orders and new export orders contracted as well, coming in at 48.4 and 47.7, respectively.

Workers were hit with staffing cuts taking effect in China and the euro area while overall employment declined to below a neutral 50 at 49.6, compared to 50.6 in the previous month.

The global manufacturing PMI was however supported by an eighth consecutive month of improvement in supplier times.

Yet, input and output prices have continued to accelerate as worries about inflationary pressures persist.

Economic calendar

In the Indian context, on Thursday, 5th October, S&P Global Services and Composite PMI for September 2023 will be released, followed by the RBI’s interest rate decision on Friday, 6th October 2023.

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