India’s September manufacturing growth cools as price rises soar to 12-year high, PMI shows

India's manufacturing sector expansion decelerated in September, with the HSBC PMI falling to a four-month low of 57.7 from 59.3, driven by a moderation in new orders and output, and the weakest hiring in a year. Concurrently, factory gate prices surged at their fastest rate in nearly 12 years due to escalating input costs, potentially reflecting the impact of US tariffs, although new export orders outside the US showed resilience. Despite these headwinds, business optimism reached a seven-month high, fueled by recent tax relief and expectations of favorable demand.

Analysis

India's manufacturing sector exhibited a loss of momentum in September, as the HSBC Manufacturing PMI, compiled by S&P Global, declined to a four-month low of 57.7 from 59.3 in August. This deceleration was primarily driven by a moderation in the expansion of new orders and output, alongside the weakest hiring pace in a year, with only 2% of surveyed firms increasing their workforce. Concurrently, the sector is grappling with significant inflationary pressures; input costs rose to their highest since May, compelling firms to increase factory gate prices at the fastest rate in nearly 12 years. Despite these headwinds and the potential impact of U.S. tariffs, business optimism strengthened to a seven-month high. This confidence is attributed to domestic factors, including anticipated demand boosts from recent goods and services tax (GST) relief. A notable element of resilience is the acceleration in new export orders, suggesting that robust demand from non-U.S. markets may be offsetting tariff-related challenges.

Key Decisions for Investors

• Investors should closely monitor the margins of Indian manufacturing companies, as the ability to pass on the fastest price increases in nearly 12 years amid intense competition will be a critical determinant of profitability.
• Given the divergence between slowing headline growth and strong business optimism, it is prudent to await further economic data to see if domestic tax cuts can successfully counteract slowing orders and rising cost pressures.
• Consider overweighting companies with diversified export markets beyond the U.S. or a strong domestic focus, as they appear better positioned to navigate the crosscurrents of U.S. tariffs and resilient global demand.