India's private sector activity has slowed to a six-month low in November, primarily due to a significant deceleration in manufacturing output, according to the latest HSBC flash India Composite Purchasing Managers' Index (PMI). The composite PMI, compiled by S&P Global, slipped to 59.9 in November from 60.4 in October. Despite the moderation, the index remains above the 50-point mark, which separates expansion from contraction.
Manufacturing Sector Loses Steam
The manufacturing sector experienced a marked slowdown, with the flash India Manufacturing PMI falling to a nine-month low of 57.4 in November, down from 59.2 in October. This indicates the slowest improvement in factory activity since February. The deceleration in growth reflected a softer increase in factory production, the weakest since May. Some manufacturers reported subdued new business intakes in November. Companies cited factors such as heavy rain in several regions and difficulties in winning orders amid competitive global pricing as contributing to the slowdown. New orders also rose at the slowest pace in three months.
Services Sector Provides a Buffer
The services sector offered a partial counterbalance to the manufacturing slowdown. The HSBC India Services PMI climbed to 59.5 in November, up from October's 58.9. This indicates a faster expansion in the services sector due to accelerated output growth. However, the rate of growth in new export orders among goods producers matched that seen in October, while service providers experienced a mild loss of growth momentum. At the composite level, international sales rose at the slowest pace since March.
Key Factors and Expert Opinions
Several factors have contributed to the moderation in India's private sector activity. According to survey respondents, heavy rainfall in some regions and intense global competition have played a role. Additionally, Pranjul Bhandari, chief India economist at HSBC, suggested that the boost from the Goods and Services Tax (GST) may have peaked, as overall new orders came in soft.
Impact on Employment and Business Confidence
The softening business sentiment, which slipped to its lowest level since July 2022, affected the pace of job creation, which slowed to an over one-and-a-half-year low. Indian private sector companies signaled an absence of capacity pressures for the second month in a row, with outstanding business volumes decreasing further during November.
Easing Inflationary Pressures
On a positive note, inflationary pressures cooled considerably in November. Input costs rose at their weakest rate in nearly five and a half years, while output charge inflation hit an eight-month low, pointing to a further easing of overall price pressures.
Overall Outlook
Despite the recent slowdown, survey participants remain optimistic about the year-ahead outlook for output, supported by competitive pricing strategies and recent capacity expansion efforts. However, overall sentiment has slipped to the lowest level since mid-2022. The HSBC Flash India Composite Output Index indicates that the combined output of India's manufacturing and service sectors remained comfortably above the neutral mark, signaling a strong rate of expansion.
