India's Manufacturing Sector Expands at Second-Fastest Pace in 3.5 Years

India's manufacturing sector expanded at the second-fastest pace in 3.5 years in April 2024, driven by strong demand and positive business sentiment, according to the HSBC final India Manufacturing Purchasing Managers' Index (PMI). The PMI dipped slightly to 58.8 in April from a 16-year high of 59.1 in March, but still indicated solid expansion, marking the 34th consecutive month of growth.

The performance was attributed to sustained demand, prompting businesses to increase their procurement of raw materials at a near-record pace. Despite the slight easing in output and new orders sub-indexes from March, they still represented the second-best readings in over three years, signaling strong demand both domestically and internationally.

Manufacturers hired additional staff to fulfill current and expected improvements in demand, and the pace of job creation was the quickest since September 2023. Business optimism also saw an uptick as firms anticipated sustained demand and increased production volumes in the next 12 months.

Why this matters: The sustained expansion of India's manufacturing sector, driven by strong demand and positive business sentiment, bodes well for the country's economic growth and job creation. It also highlights the resilience of the sector amidst global economic challenges.

However, the surge in demand led to a modest uptick in both input and output prices, although inflation remained within the central bank's target range. Firms passed on these increases to consumers through higher output charges, as demand remained resilient, resulting in improved margins.

The expansion in manufacturing activities was supported by utilities, energy, and FMCG stocks, which helped the BSE Sensex bounce back 243 points to 74,740.67 in the opening session on Thursday. "Operating conditions improved at the second-fastest pace in three-and-a-half years, supported by buoyant demand and a sharp upturn in new business intakes," the HSBC PMI report noted.

Indian goods producers forecast higher output in the year ahead, and the rate of inflation remained below its long-run average. As firms geared up to increase production, they built up stocks of raw materials at the third-fastest rate since the survey began over 19 years ago.

In summary, India's manufacturing sector witnessed the second-best improvement in operating conditions in three-and-a-half years in April 2024, according to the HSBC PMI data. The sector maintained robust growth, driven by sustained demand and a positive business sentiment, despite a slight dip from the previous month. Manufacturers exhibited resilience amidst escalating costs, showcasing an optimistic outlook for the industry.

Key Takeaways

• India's manufacturing PMI at 58.8 in April 2024, indicating solid expansion.
• Sustained demand and positive business sentiment drove manufacturing growth.
• Manufacturers hired more staff to meet current and expected demand increase.
• Inflation remained within target range despite input and output price rises.
• Manufacturing sector's resilience amidst global challenges bodes well for growth.