India’s Record PMI – A Manufacturing Renaissance in the Making!

What’s the Point?

April 2024 witnessed the fastest rates of expansion of new business orders and output in close to 14 years due to a strong performance in both manufacturing and service sectors (as per HSBC India Purchasing Managers’ Index (PMI)). India’s high growth phase is being led by increasing public and private capital expenditure directed towards the development of manufacturing and infrastructure sectors. Further, Government initiatives like Production-Linked Incentive Scheme, Pradhan Mantri Gati Shakti Mission and others are helping various local and global companies set up manufacturing units in India. Thus, the rise in Composite PMI to a record level of 62.2 in April 2024 aligns well with the Government’s vision of making India a manufacturing powerhouse as it enters Amrit Kaal.

Numbers in Perspective

Source: Centre for Monitoring Indian Economy (CMIE)

Highlights from the Composite PMI of 62.2 (April 2024)

Based on the responses gathered through the surveys conducted by S&P Global on variables monitored, the key highlights were as follows:

- Growth in India remained broad-based across the manufacturing and service sectors, with manufacturing witnessing a sharper rate of increase, albeit one that was softer than in March. In the service economy, business activity rose to the greatest extent in three months.

- Private sector sales expanded for the 33rd successive month in April at the quickest pace in just under 14 years. The output of the services economy increased faster than that of manufacturing of goods.

- While orders that are pending completion among private sector companies in India witnessed pressure, rising international sales positively contributed to total order books. At the composite level, new export orders rose at the fastest rate, with services companies noting a quicker rate of expansion. Anecdotal evidence pointed to stronger sales to clients in Africa, Asia, Australia, the Americas, Europe and Middle East.

- Efforts to meet rising demand and clear backlogs supported further job creation at the start of FY2025. While service providers took on extra staff at a marginal pace that was softer than in March, producers of goods raised workforces to the greatest extent in ~1.5 years.

- Manufacturers substantially stepped-up input buying, with growth climbing to a 10-month high. This supported a further increase in stocks of purchases, one that was the second-fastest since May 2023. Suppliers were reportedly able to accommodate for the upturn in buying levels, with delivery times improving to the greatest extent in 10 months.

- Input cost inflation receded at both manufacturing companies and their services counterparts, with the latter noting the faster rise. Anecdotal evidence suggested that labour costs were the main factor behind rising expenses at service providers. At the composite level, the rate of increase was below its long-run average.

Development of infrastructure has a multiplier effect on demand and efficiency of logistics which increases manufacturing competitiveness, and increases commercial and entrepreneurship opportunities. The highlights discussed above suggest that India’s manufacturing theme is expected to play out in the long term due to a convergence of several enablers (discussed below) leading to a multi-decadal growth.

Conclusion

As per RBI’s Bulletin (April 2024), India’s domestic economic activity continues to expand at an accelerated pace, supported by fixed investment and an improving global environment. The second advance estimates placed real GDP growth at 7.6% for FY2024, the third successive year of 7% or higher growth. The recent PMI substantiates the fact that this strong economic growth is broad-based.

India’s Nominal Gross Domestic Product (GDP) is expected to double to $7 trillion by FY2030, with manufacturing expected to grow at a faster rate. As Manufacturing forms an important component of India’s GDP and the investible universe is broad and diversified, one could consider our NFO of HDFC Manufacturing Fund. The Fund aims to invest at least 80% of its net assets in the manufacturing theme. It shall have diversified exposure to companies that: (1) are engaged in manufacturing activity, (2) may benefit from Government’s Make-in-India initiatives, (3) are positioned to substitute India’s imports by manufacturing locally, (4) export goods manufactured in India and have the potential to increase employment in India. Visit www.hdfcfund.com or the product page to know more.

[NFO Period of HDFC Manufacturing Fund: April 26, 2024 to May 10, 2024] Sources: PMI by S&P Global, CMIE and other publicly available information

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