The private sector economy had a fantastic start to the new year 2024, with the headline HSBC Flash India Composite PMI Output Index coming in at a 4-month high of 61.0 in January 2024. 

This is a pointer that the private sector economy has gained growth momentum, and its health has improved substantially for the month under review, the first ever HSBC Flash India PMI data released on Wednesday showed.

The headline HSBC Flash India Composite PMI Output Index – a seasonally adjusted index that measures the month-on-month change in the combined output of India’s manufacturing and service sectors – was at 61.0 in January, inside expansion territory for the thirtieth successive month. 

This resulted from a sharper upturn in new work intakes, which fuelled output growth. Service providers noted a stronger increase in activity than manufacturers, but growth accelerated in both cases.

Rising from 58.5 in December, the latest composite figure pointed to the sharpest rate of growth since September 2023. 

Pranjul Bhandari, Chief India Economist at HSBC, said: “The economy grew at a faster pace in January, led by stronger manufacturing output, as well as more robust business services activity. New orders rose at a faster pace than a month ago, and within that, international orders were stronger than before. Input prices rose quickly, but output prices were raised to a smaller extent.”

Operating capacities remained under pressure, encouraging firms to hire additional workers. Another factor that underpinned job creation was a pick-up in business confidence. 

The inaugural flash results also highlighted an intensification of cost pressures, but selling prices were raised to a smaller extent.

Survey participants mainly attributed the upturn to favourable economic conditions, demand strength and ongoing improvements in new business inflows. Indeed, aggregate sales increased at a sharp pace in January, and one that was the fastest in six months. 

Both manufacturing firms and their service counterparts recorded quicker rates of expansion in new orders.

INTERNATIONAL ORDERS 

The rise in total new business inflows was supported by the most marked increase in international orders since last October. Panellists reported higher sales to clients in Africa, Asia, Australia, Canada, Europe, the Americas and the Middle East. Goods producers again registered a quicker expansion in external orders than service providers.

Amid ongoing improvements in new orders, the operating capacities of private sector firms in India remained under pressure at the start of the year. 

This was evidenced by a further increase in outstanding business volumes. Although moderate, the rate of accumulation accelerated to the quickest in nearly a year-and-a-half, Flash HSBC PMI India data showed.

As has been the case on a monthly basis since mid-2022, net employment in India rose during January 2024.

The increase was mainly centred on the service economy, as job levels in the manufacturing industry have broadly remained unchanged since December 2023. 

At the composite level, payroll numbers expanded at a slight pace similar to that recorded at the end of 2023.

In addition to capacity pressures, another aspect behind employment growth was an improvement in firms’ expectations for output in the coming 12 months. 

The overall level of business confidence rose to its second-highest mark in over a year during January, as manufacturers and service providers became more optimistic about the outlook. Notably, the level of positive sentiment in the manufacturing industry climbed to its highest in nearly nine- and-a-half years.

On the price front, India’s service economy generally led to a pick-up in cost pressures at the composite level, which hit a five-month high. 

Service providers observed the fastest increase in operating expenses since August 2023, amid higher food (chicken, eggs, rice and vegetables), vehicle parts, construction materials, freight and labour costs. According to panellists, additional overtime payments were made to employees due to robust demand.

Meanwhile, manufacturers noted a mild rise in purchasing prices in January 2024 that was broadly similar to those seen in November and December and, therefore, remained well below its long-run average.

Prices charged for Indian goods and services rose further at the start of 2024, though the aggregate rate of charge inflation softened to a ten-month low. 

Rates of increase were broadly similar across the manufacturing and service sectors, with the latter noting a slowdown and the former an acceleration.

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