Manufacturing surge lifts India PMI to three-month high in February

India’s private sector expanded at a faster pace in February, driven by strong demand for manufactured goods, while services activity remained broadly stable, according to a survey that also pointed to rising inflationary pressures.

HSBC’s flash India Composite Purchasing Managers’ Index (PMI), compiled by S&P Global, rose to 59.3 in February from 58.4 in January. The reading was the highest in three months and above a Reuters poll median forecast of 59.0. The 50-mark separates expansion from contraction.

The increase was supported by a rise in total new orders, which grew at the fastest pace since November. Businesses linked the growth to strong demand, local tourism and marketing efforts. International sales also increased at the fastest rate in five months, contributing to overall demand.

Goods producers recorded a sharper increase in sales, which pushed output growth to a four-month high. Services firms, however, reported a slowdown in new business growth to a 13-month low, although they continued to outperform manufacturers in export orders.

The preliminary manufacturing PMI rose to 57.5 in February from 55.4 in January. The services PMI was largely unchanged at 58.4 compared with 58.5 in the previous month.

Improved sales supported faster hiring, while optimism about activity over the next year rose to its highest level in a year.

The survey also showed rising price pressures. Input costs increased at the fastest rate in 15 months, leading to output charge inflation reaching a six-month high. Services firms reported the sharpest increase in input price inflation in two-and-a-half years, while factory input price inflation remained unchanged from January.

The combination of steady growth and rising costs, particularly in the services sector, is expected to keep the Reserve Bank of India cautious. Retail inflation rose 2.75% last month after the statistics ministry updated the consumer price index basket and changed the base year to 2024.

According to a Reuters survey, the central bank is expected to hold its key policy rate at 5.25% this year.

(With inputs from Reuters)