MUMBAI: The manufacturing sector growth has lost its momentum and has fallen to a 14-month low 56.3 in February, down from 57.7 in January, but still firmly within the expansion mode, according to a private reading of the purchasing managers index. This is the weakest reading since December 2023.
Yet the overall momentum in the manufacturing sector remains positive in the reporting month as any reading above 50 shows growth, HSBC said in a note Monday.
The steep deceleration in February comes amid softer increase in new orders and production, the monthly survey shows.
The seasonally-adjusted HSBC India manufacturing purchasing managers index (PMI) has printed in at 56.3 in February, down from 57.7 in January.
“Although output growth slowed to the weakest level since December 2023, overall momentum in the manufacturing sector remained broadly positive in February," said Pranjul Bhandari, chief economist at HSBC India.
However, demand remains strong, and the expansion streak in output extended to 44 months on the trot. Manufacturers attributed the growth to improved demand, technological investments, and the launch of new projects.
Business conditions improved across all three key manufacturing segments--consumer goods, intermediate goods, and investment goods. Although the growth rate slowed compared to previous months, it remained above the long-term average.
February marked the 44th consecutive month of rising new business orders. Companies reported strong client demand and competitive pricing strategies as key factors driving this growth. However, the overall pace of expansion was slightly lower than in January.
It also said export orders also continued to grow at a strong pace, supported by robust global demand. Though the growth rate eased compared to January's near 14-year high, it remained sharp. Manufacturers also increased their purchasing activity, although at the slowest rate in 14 months.
On the other hand, finished goods stocks declined as firms relied on existing inventory to meet demand. The survey also noted improvements in supplier delivery times for the 12th straight month.
Although softer than January reading which was a near 14-year high, the pace of expansion was sharp, on the back of new export orders as manufacturers continued to capitalise on robust global demand for their goods, the survey said.
Moreover, favourable domestic and international demand prompted firms to increase purchasing activity and hire extra workers.
“Business expectations also remain very strong, with nearly one-third of the survey participants foreseeing greater output volumes in the year ahead," Bhandari said.
On the job front, manufacturers continued to expand their workforce in February with the rate of job creation being the second-best in the series’ history, behind only that recorded in January.
“One-in 10 firms signalled greater recruitment activity, while 1% shed jobs," the survey said.
According to the survey, February saw the slowest rise in cost burdens in a year, but demand buoyancy kept charge inflation at an elevated level.
On the macroeconomic front, the economy grew by 6.2% in the December quarter, recovering sequentially from seven-quarter lows, but the expansion came in lower than last year.
For the fiscal 2025, the government now pegs the economy to clip at 6.5%, marginally higher than its initial estimate of 6.4% but way below the revised growth of 9.2% in FY24, up from 8.2% in the previous estimate.