India's factory growth at five-month high in February, cost pressures cool

Bengaluru: India's manufacturing industry enjoyed robust growth in February with activity expanding at its fastest pace in five months, led by accelerated global demand and lower inflationary pressures, a private survey showed.

The HSBC final India Manufacturing Purchasing Managers' Index, compiled by SP Global, rose to 56.9 in February from January's 56.5, beating a preliminary estimate of 56.7.

India's manufacturing PMI has been above the 50-mark that separates growth from contraction for 32 months.

Asia's third-largest and the world's fastest-growing major economy expanded 8.4 per cent in the October-December quarter, partly helped by a surge in manufacturing, according to data released by the government on Thursday.

That growth rate was much stronger than the 6.6 per cent expansion predicted in a Reuters survey, where the highest forecast was 7.4 per cent. The manufacturing sector, which accounts for 17 per cent of India's economy, expanded 11.6 per cent year-on-year last quarter.

"The HSBC final India Manufacturing PMI indicates that production growth continued to be strong, supported by both domestic and external demand," noted Ines Lam, economist at HSBC.

"Manufacturing firms' margins improved as input price inflation slipped to the lowest since July 2020."

Driven by buoyant demand, the output and new orders sub-indexes rose to five-month highs. Improved technology and increased sales bolstered greater output volumes, leading to an upturn in production.

Global demand improved robustly and the rate of expansion was the highest in almost two years. Demand from many countries and regions picked up -- Australia, China, the United States and the United Arab Emirates were some of those cited.

Optimism about the year ahead cooled marginally, with the future output index only dipping from January when it was at its highest since December 2022.

However, a strong and positive outlook failed to generate more employment in the sector. Survey participants reported sufficient staff for the current workflow.

Cost pressures rose at their weakest pace since mid-2020 - when the world was grappling with the Covid-19 pandemic.

A strong business outlook and muted inflationary pressures prompted firms to build up stocks of raw materials, pushing up the quantity of purchases sub-index substantially to its highest in five months.

The output price index eased to the joint lowest since March 2023 indicating an easing of inflationary pressures.

The Reserve Bank of India is expected keep interest rates on hold until at least July, the Reuters poll found, as growth remains strong and inflation within its target range of 2-6 per cent.