India's manufacturing sector growth hits five-month high in February on robust demand

India's manufacturing sector growth climbed to a five-month high in February amid a sharper uptick in factory production and sales, supported by both domestic and external demand, a monthly survey said on Friday.

The seasonally adjusted HSBC India Manufacturing Purchasing Managers' Index (PMI) rose from 56.5 in January to 56.9 in February, pointing to the strongest improvement in the health of the sector since September 2023.

In Purchasing Managers' Index (PMI) parlance, a print above 50 means expansion while a score below 50 denotes contraction.

According to the survey, production rose at the fastest pace in five months and fuelled the quickest increase in sales since last September and the strongest expansion in new export orders for 21 months.

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

Despite the uptick in growth momentum, manufacturing employment in India was little-changed. "Goods producers mentioned that payroll numbers were sufficient for current requirements," the survey said.

On the inflation front, purchasing cost inflation retreated to a 43-month low, with selling charges increasing to a lesser extent as a result. The input costs witnessed the slowest rise in over three-and-a-half years.

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

Besides robust domestic demand, new export orders rose at the fastest rate in nearly two years, with Australia, Bangladesh, Brazil, Canada, mainland China, Europe, Indonesia, the US and UAE as sources of demand growth.

Manufacturing firms scaled up buying levels in response to greater production requirements, sustained increases in sales and to build safety stocks, the survey said. Going ahead, manufacturers have a bullish business outlook amid buoyant demand conditions.

February survey data indicated sustained optimism among manufacturers regarding the year-ahead outlook for production. The overall level of confidence was the second highest since December 2022.

"Buoyed by robust demand and improving profit margins, manufacturers have an optimistic outlook about future business conditions," Lam added.

The HSBC India Manufacturing PMI is compiled by S&P Global from responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers.