HSBC Flash India PMI: Business Activities Remain Steady In August

India's business activities expanded at a slightly slower pace in August, a private survey showed. The headline HSBC Flash India Composite Output Index—a seasonally adjusted index that measures the month-on-month change in the combined output of India's manufacturing and service sectors—stood at 60.5 in August, little changed from 60.7 in July, pointing to a sharp rate of expansion that exceeded its long-term trend level.

There was a softer increase in manufacturing industry output and a fractionally stronger rise in activity across the service economy. The HSBC Flash India Manufacturing PMI slipped from 58.1 in July to a three-month low of 57.9 in August. The latest reading was still above the historical average (54.0) and signaled a strong improvement in the sector's health. Amid reports of strong demand and favorable market conditions, as well as brand recognition and successful advertising, Indian private sector companies experienced another increase in new orders midway through the second fiscal quarter.

At the composite level, new export orders rose at a pace that was the weakest since April, but nevertheless among the quickest since the series started a decade ago. Although there were signs of capacity pressures at private sector companies in India, evidenced by a further increase in backlogs, trends diverged at the sub-sector level.

One factor that supported the clearing of backlogs at manufacturers was another round of job creation. Moreover, the pace of employment growth was markedly and broadly similar to July. Payroll numbers also rose solidly in the service economy, supporting a twenty-seventh successive month of expansion at the composite level. In order to safeguard against input shortages and ensure that production volumes can meet rising demand requirements, manufacturers purchased additional raw materials and semifinished items in August. The pace of expansion was sharp and the strongest in four months. With suppliers' delivery times shortening further, stocks of purchases increased at one of the fastest rates seen in 19-and-a-half years of data collection. Companies operating in India's private sector reported a further increase in cost burdens in August.

The overall rate of inflation eased to a six-month low, however, and was modest. Index readings for the manufacturing and service sectors were generally alike. Charge inflation climbed to a near 11-year high at goods producers while softening at service providers. At the composite level, the latest increase in selling prices was solid and above its long-run average, despite softening since July. Private sector companies in India forecast higher output levels in the year ahead amid expectations that demand conditions will remain favourable. New client enquiries and marketing efforts also supported positive sentiment in August, which somewhat faded due to inflation and competition concerns.