India’s strong private sector expansion loses some steam in September, PMIs show

India's private sector growth moderated in September, with the HSBC Composite PMI falling to 61.9 from August's multi-year high of 63.2, signaling a cooling trend driven by softer new orders, weaker international demand, and tempered job creation across both manufacturing and services. Despite robust overall expansion and improved business sentiment on domestic demand prospects, manufacturers reported their sharpest selling price hikes in nearly 13 years, and the anticipated full impact of U.S. tariffs on exports suggests potential further deceleration.

Analysis

India's private sector growth, while remaining strong, showed clear signs of moderation in September, as the HSBC Composite PMI fell to 61.9 from a multi-year high of 63.2 in August. The deceleration was broad-based, with both the manufacturing PMI (dipping to 58.5) and the services business activity index (falling to 61.6) cooling. This slowdown is attributed to softer demand and intense competition tempering new order growth, alongside a notable weakening in international demand, which saw new export orders rise at the softest pace in six months. A significant concern is the tempered job creation, which slowed from August, indicating that the rapid economic expansion is not translating into a proportional increase in payrolls. The inflation outlook is mixed; while overall input cost inflation eased, manufacturers hiked selling prices at the sharpest rate in nearly 13 years, citing higher material costs. Despite the slowdown, business sentiment strengthened to a seven-month high on hopes of a domestic demand boost from recent GST cuts, but this optimism is juxtaposed with the looming impact of U.S. tariffs, which could deepen the deceleration in private sector activity.

Key Decisions for Investors

• Investors should scrutinize portfolio exposure, potentially favoring companies with a strong domestic consumer focus, as weakening export orders and impending tariff impacts contrast sharply with optimistic domestic sentiment fueled by tax concessions.
• Monitor margin pressures within the manufacturing sector, as firms are raising selling prices at the fastest rate in nearly 13 years to combat rising input costs, a strategy that may test demand elasticity and profitability.
• Consider moderating near-term growth expectations for the Indian market, as the deceleration from a peak, coupled with slowing job creation and external headwinds, suggests the current cycle's fastest expansion phase may be over.
• Watch for divergence between the services and manufacturing sectors, as cooling price pressures in services may offer relative stability compared to the inflationary and margin challenges currently facing goods producers.