Although there was a slight decrease, HSBC's manufacturing PMI remained significantly above its long-term average in August

New Delhi, September 2: India's Manufacturing Purchasing Managers' Index (PMI) experienced a slight drop in August, decreasing to 57.5 from 58.1 in July, according to the HSBC India Manufacturing PMI report.

Despite this minor decline, the August PMI remains well above its long-term average of 54.0, reflecting a notable improvement in operating conditions.

The report indicated that while Indian manufacturers saw softer increases in new business and output in August, the growth rates were still high by historical standards. The seasonally adjusted PMI stood at 57.5, down from July's 58.1 but still above the long-term average of 54.0, signaling significant enhancement in operating conditions.

The report noted a dip in business confidence, but firms increased their purchasing activities to guard against potential input shortages. This led to a substantial rise in pre-production inventories, marking one of the strongest increases in nearly 20 years.

The rise in purchasing activity was supported by a decrease in cost pressures, with input price inflation easing to its lowest level in five months. The sustained demand allowed firms to pass additional costs to customers, resulting in higher selling prices.

Pranjul Bhandari, Chief India Economist at HSBC, commented that while the Indian manufacturing sector continued to expand in August, the rate of expansion moderated slightly. New orders and output followed the overall trend, with some panelists noting that intense competition contributed to the slowdown.

New business grew sharply in August but at the slowest rate in seven months. This growth was driven by factors such as advertising, brand recognition, and strong demand trends, though competitive conditions moderated growth.

New export orders also increased at the slowest pace since early 2024, with one in ten firms reporting improved international sales, particularly in Asia, Africa, Europe, and the US.

The report highlighted that reduced cost pressures provided relief to goods producers, with purchasing prices rising at the slowest pace in five months. Firms reporting higher costs cited increases in prices for leather, minerals, and rubber.

As input cost inflation receded, manufacturers focused on rebuilding safety stocks by buying more raw materials and semi-finished goods, leading to the sharpest growth in input purchasing since April.

Input inventories saw a significant rise in August, reaching one of the highest levels in nearly two decades. The report suggested that the lack of pressure on supplier capacity helped manufacturers' stock-building efforts, with input lead times shortening for the sixth consecutive month.

Backlogs of work remained largely unchanged from July, and job creation softened as some firms reduced their headcounts. However, the overall rate of employment growth remained solid compared to historical data.

The report also noted that despite easing cost pressures, there was a notable increase in the prices of Indian goods in August. The rate of inflation was the second-fastest in nearly 11 years, with firms passing on additional cost burdens to clients amid strong demand.