Manufacturing Sector Growth Hits 8-Month High in March: HSBC

India's factory sector recorded its best growth in eight months in March this year, driven by strong demand and a significant rise in production, a private survey said on Wednesday.

The HSBC India Manufacturing Purchasing Managers' Index (PMI), prepared by S&P Global, rose to 58.1 in March, from 56.3 in February and 57.7 in January. During the previous months, the index was at 56.4 in December and 56.5 in November. A reading above 50 indicates expansion.

"The most recent data show there has been a substantial improvement in the general well-being of the sector, beating its historical average," the survey said. It pointed out that overall sales in March increased at their quickest rate since July 2024 due to high demand from customers, beneficial market conditions, and effective advertising campaigns.

Even with strong domestic demand, export growth slowed to a three-month low. Nevertheless, favorable gains were observed in major markets in Asia, Europe, and West Asia.

"India's manufacturing PMI jumped to 58.1 in March, up sharply from 56.3 in February. Even while global orders lost a little momentum, overall demand momentum continued to be strong with the new orders index reaching an eight-month high of 61.5," said HSBC chief India economist Pranjul Bhandari.

Increased demand caused companies to tap into current inventories, leading to the largest fall in finished goods stocks in more than three years. Business sentiment continued to be optimistic, with about 30% of companies expecting higher production in the next year, while fewer than 2% expected a fall, Bhandari said.

India's economic growth picked up in the December quarter after a September slowdown, but still lagged last year's. GDP grew 6.2% in Q3 FY25, the weakest since Q4 FY23, except for the revised estimate of 5.6% for Q2 FY25.

For the entire fiscal year (FY25), GDP growth is seen by the National Statistics Office (NSO) at 6.5%. The economy would have to grow at an average of 7.6% in the last quarter to hit this target.

Manufacturing production grew by 3.5% in Q3 FY25, up from 2.1% in the prior quarter. Still, this is much lower than 14% in Q4 FY24 and 7.5% in Q1 FY25 and suggests that weak manufacturing performance has been holding back overall economic growth.