India's manufacturing sector improves slightly in January
What's the story
India's manufacturing sector saw a slight improvement in January, as per the HSBC India Manufacturing Purchasing Managers's Index (PMI), compiled by S&P Global. The index rose to 55.4 from December's two-year low of 55.0, but fell short of the preliminary estimate of 56.8. The PMI has remained above the neutral mark of 50 since July 2021, indicating continued expansion in the sector despite recent challenges.
Recovery indicators
Recovery mainly driven by domestic demand
The latest PMI data shows that factory output has improved since December, when growth had hit a 38-month low. New orders, a key indicator of demand, also regained some momentum from last month. However, export demand remained weak with only marginal improvement in orders compared to December. This suggests that the overall recovery is mainly driven by domestic demand rather than international markets.
Employment trends
Job growth remained subdued
Despite the improvement in manufacturing activity, job growth remained subdued. Hiring reached a three-month high but the pace of recruitment was still modest as firms adjusted staffing levels to meet higher operational needs. Business confidence also slipped to its lowest level in three-and-a-half years with only 15% of surveyed companies expecting output to increase over the next year while most anticipated no change at all.
Cost dynamics
Input costs rose moderately
The PMI data also paints a mixed picture of price pressures in India's manufacturing sector. Input costs rose moderately but at the fastest pace in four months, with companies citing higher prices for chemicals, copper, iron, steel and transportation. However, output price inflation fell to its lowest level in nearly two years indicating that manufacturers still have limited pricing power despite firmer demand conditions.