India's Manufacturing Soars to Near 17-Year Highs, Services Sector Moderates

In October, India's services sector grew at its slowest pace in five months, with the HSBC India Services Purchasing Managers' Index (PMI) at 58.9. This slowdown was attributed to competitive pressures and heavy rainfall in certain regions. Despite this, the manufacturing sector showed remarkable acceleration, with its PMI reaching 59.2, close to a 17-year high. This strong performance was fueled by increased demand following Goods and Services Tax (GST) cuts and robust activity during the peak festive period. The composite PMI, a combined indicator of manufacturing and services, slightly decreased to 60.4 from 61 in September, mainly due to the services sector's moderation. Input cost and output charge inflation eased, with firms reporting the slowest rises in 14 and seven months, respectively, indicating that GST reform helped curb price pressures. Companies expressed strong confidence in future business activity over the next 12 months and increased their workforce in October. The Index of Industrial Production for September also indicated faster growth in key manufactured products like consumer durables and automobiles.

Impact: The significant expansion in the manufacturing sector, hitting multi-year highs, suggests strong industrial output and potential for improved corporate earnings. This, coupled with high business confidence and GST benefits, points to underlying economic resilience. While the services sector slowdown warrants attention, the overall robust PMI figures are positive for investor sentiment, particularly for manufacturing-linked stocks. Rating: 7/10.

Difficult terms: Purchasing Managers' Index (PMI): A survey-based economic indicator that assesses business conditions in the manufacturing and services sectors. A reading above 50 signifies expansion, while a reading below 50 indicates contraction. Goods and Services Tax (GST): A unified tax system in India that replaced multiple indirect taxes. Reductions or reforms can impact consumer demand and business costs. Index of Industrial Production (IIP): A measure of the volume changes in industrial production over a specific period. Composite PMI: A weighted average of the manufacturing and services PMI, providing a consolidated view of the economic health of these sectors. Input costs: The expenses incurred by businesses to acquire resources for production, such as raw materials, energy, and labor. Output charges: The prices that businesses set for their goods or services sold to customers.