India Factory Growth Slows to 54.7 in October as Export Orders Reach Six-Month High

India's manufacturing sector expanded again in October, but at a slower pace than in September, according to the HSBC India Manufacturing Purchasing Managers' Index compiled by S&P Global and released on Monday. The seasonally adjusted index fell to 54.7 from 55.1 in September and came in below the preliminary reading of 54.9. It stayed comfortably above the neutral mark of 50.0 and above its long-run average, so the survey still points to a solid improvement in the health of the sector.

The survey, based on responses from factory purchasing managers across the country, is one of the earliest monthly readings of Indian industrial activity. HSBC's chief India economist, Pranjul Bhandari, said the index softened from the previous month yet remained firmly in expansionary territory and above its long-run average. Firms reported that demand held up, with new business rising sharply, though the pace eased slightly from September's seven-month high.

Exports cushion the slowdown

Overseas demand did much of the work in October. New export orders increased at the fastest rate in six months, and manufacturers reported higher sales from a broad set of destinations, including Bangladesh, Canada, Indonesia, Nepal, Oman, Saudi Arabia, Sri Lanka, the United Kingdom, the United States and the UAE. The survey attributed the rise in new business to favorable demand conditions, new client wins and successful marketing campaigns.

Production continued to expand at a sharp pace, although output growth moderated from September, mainly because intermediate goods producers slowed. That segment still led the overall expansion. Bhandari said strong international demand pushed export order growth to a six-month high and supported a robust rise in output.

Costs ease while inventories build

Price pressures cooled across all three broad manufacturing categories tracked by the survey. Input cost inflation fell to its lowest level since February even though manufacturers reported higher prices for some materials and energy. The increase in selling prices was the weakest in just under four years, which suggests companies had limited room to pass costs on to customers.

Firms also built up stock at an unusual pace. Input inventories rose at the fastest rate in eight months, and finished goods stocks increased at a record pace in the survey's more than 21-year history. Bhandari said producers were building precautionary buffers to limit potential shortages and meet production requirements in a volatile global environment. Raw material purchasing growth, however, slowed to its weakest point in a 64-month sequence of expansion, a sign that some firms may be guarding against an uncertain demand outlook.

What it means for factory jobs

Factory employment rose for a second consecutive month as higher production requirements and heavier workloads encouraged recruitment, but the pace of job creation slowed from September. Capital goods makers reduced their workforce during the month, while other segments added staff. Outstanding business volumes also increased for the seventh month in a row. For workers, the picture is steady rather than booming: demand is strong enough to sustain hiring, but firms are not yet expanding payrolls quickly.

Business confidence slipped from September and stayed below its long-run average. Close to 18 percent of manufacturers expected higher output over the coming year, while the rest anticipated no change. The survey said optimism was supported by fresh client inquiries and demand for industrial automation and technology solutions, pointing to continued investment in plant equipment and production planning even as overall sentiment softened.

The next signal will come with November's survey and official industrial output data, which will show whether export orders keep growing and whether hiring strengthens after two modest monthly gains. Analysts will also watch input costs, since softer inflation has given manufacturers room to hold prices while demand holds up. For now, the survey describes a sector still expanding, supported by overseas buyers, with domestic momentum and recruitment advancing more cautiously.