MUMBAI: The manufacturing sector continues to strengthen, driven primarily by festive demand, which received a boost from lower prices for a host of goods following the GST rate cuts in the previous month. This led to a faster increase in new orders, boosting output growth and purchasing levels in October, according to a private survey.
The headline HSBC Purchasing Managers’ Index (PMI), compiled by S&P Global, rose to 59.2 in October from 57.7 in September. The figure remains only marginally below the record high of 59.3 in August, which marked an 18-year peak, the British bank said on Monday.
A reading above 50 in the PMI survey indicates an expansion in activity, while a reading below 50 signals contraction. The headline figure has now remained in the expansion zone for 52 consecutive months.
“New orders increased further at the start of the third quarter, with companies attributing growth to advertising, buoyant demand, and lower GST rates. Moreover, the pace of expansion was sharper and stronger than that recorded in September,” the survey said, quoting HSBC India Chief Economist Pranjul Bhandari.
However, the demand uptick was driven mostly by the domestic market, as new export orders increased at a softer rate. The latest improvement in international demand was marked, though the least pronounced so far this calendar year.
Bhandari said, “The manufacturing PMI accelerated in October as robust end-demand fueled expansions in output, new orders, and job creation. Meanwhile, input prices moderated in October, while average selling prices rose as some manufacturers passed on additional cost burdens to end-consumers. Looking ahead, future business sentiment is strong due to positive expectations around GST cuts and healthy demand.”
On the cost front, the survey noted that manufacturers purchased additional raw materials and semi-finished goods during the reporting month to supplement production and build up inventories.
Notably, buying levels rose at the fastest pace since May 2023. One factor supporting input purchasing growth was the notable softening of cost inflation. The latest rise in overall expenses was modest—the weakest in eight months—and well below the long-run series average, the survey added.
“Despite receding cost pressures, the rate of charge inflation matched that registered in September and was therefore the joint-highest in 12 years. Survey participants indicated that strong demand was the key factor behind the current hike in output prices. Some firms also suggested that greater outlays on freight and labour were passed on to customers,” the report said.
On the jobs front, the survey indicated that job creation entered its 20th consecutive month in October, though at a moderate pace, broadly similar to September. Capacity pressures among manufacturers remained mild, as signaled by only a slight rise in outstanding business volumes. Demand strength was cited as the main determinant of rising backlogs, according to respondents.
Manufacturers remain optimistic about the months ahead, expecting the positive impact of GST rate cuts on demand to continue. This, in turn, is likely to lead them to expand capacities and step up marketing efforts, the survey concluded.
