Business

India’s Manufacturing Sector Shows Strong Growth In January; Driven By Export Orders And Restocking

India’s manufacturing sector saw a robust expansion in January, driven by a significant rise in new export orders and likely global restocking activity, according to the latest HSBC flash Purchasing Managers’ Index (PMI) report released on Friday. The report indicates a positive momentum in the manufacturing sector, signaling continued strength despite a slight dip in the services sector.

The January PMI data points to a sharp increase in manufacturing activity, with new export orders driving much of the growth. The report highlights that the global restocking phase likely played a major role, with businesses around the world stocking up before potential tariff hikes. This surge in demand for manufactured goods resulted in an accelerated output from manufacturers to meet the rising orders.

The HSBC flash PMI report, which analyzes 100 activity indicators, shows that the growth momentum in the December quarter was stronger than in the previous quarter. Specifically, 65% of the indicators showed positive growth in the quarter ending December, compared to 55% in the previous quarter.

Services Sector Experiences Slight Decline

In contrast to the manufacturing sector, the services PMI in January saw a slight decline compared to the previous month. The report suggests that this divergence between the manufacturing and services sectors could be attributed to concerns about tariffs. While manufacturing benefited from new export orders, the services sector did not experience the same level of growth, pointing to the possible impact of tariff-related uncertainties.

Cost Pressures Diverge Across Sectors

The report also highlights diverging trends in cost pressures between manufacturing and services. Manufacturers experienced a decrease in input prices, which fell to a ten-month low. This allowed them to improve their margins as the cost of production eased.

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On the other hand, service providers faced rising input prices, which increased at the fastest rate since August 2023. As a result, service providers raised their prices, but their margins continued to deteriorate. The increase in prices charged did not keep pace with the rise in costs, leading to a squeeze on profitability in the services sector.

Inflation Eases, Paving The Way For Rate Cuts

The report also noted a decline in inflation, with expectations that it will continue to ease in the coming months. Inflation is project to fall to 4.2% in January, which may prompt the Reserve Bank of India (RBI) to ease monetary policy. HSBC forecasts two 25 basis point rate cuts in February and April, bringing the repo rate to 6%.

The HSBC flash PMI is an early indicator of the final PMI data for manufacturing, services, and composite indices. Released approximately one week before the final data, the flash PMI is based on 80-90% of the survey responses for the month, providing a reliable forecast for the final PMI release.

In summary, while the manufacturing sector in India showed strong growth in January, supported by rising export orders and restocking efforts globally, the services sector faced some headwinds. The easing of inflation and the improving manufacturing momentum suggest that India’s economy is poised for continued growth, with potential for easing monetary policy in the near future.

Richa Kaushik

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