New Delhi: India's manufacturing sector regained momentum in October after cooling to a four-month low in September, lifted by GST relief measures, improved productivity and increased technology investments, according to a private survey released on Monday.

A sharper rise in new orders fueled stronger growth in output and purchasing activity, leading to a near-record expansion in input inventories, according to the survey.

The HSBC India Manufacturing Purchasing Managers' Index (PMI), compiled by S&P Global, climbed to 59.2 in October from 57.7 in September, compared with 59.3 in August and 59.1 in July. The index stood at 58.4 in June, 57.6 in May, and 58.2 in April. A reading above 50 indicates expansion in activity.

However, external sales rose at the slowest pace in 10 months, signaling some moderation in external demand.

"New orders increased further at the start of the third fiscal quarter, with companies attributing growth to advertising, buoyant demand, and the GST reform. Moreover, the pace of expansion was sharp and stronger than that recorded in September," the survey said. "October data showed that the pick-up in sales growth mainly stemmed from the domestic market, as new export orders increased at a softer rate."

Upbeat on production

S&P Global indicated that Indian companies continued to signal upbeat forecasts for production.

"Manufacturers continued to purchase additional raw materials and semi-finished items in October, reportedly to supplement production and add to their inventories. Notably, buying levels expanded at the fastest pace since May 2023," the survey said. "One factor that supported input purchasing growth was a notable softening of cost inflation."

India's retail inflation eased to 1.54% in September from 2.07% in August, the lowest level since June 2017, helped by a favourable base effect and a sharp decline in prices of vegetables and pulses. October's retail inflation data will be released next week.

"Robust end-demand fuelled expansions in output, new orders, and job creation," said Pranjul Bhandari, chief India economist at HSBC. "Meanwhile, input prices moderated in October while average selling prices increased as some manufacturers passed on additional cost burdens to end-consumers. Looking ahead, future business sentiment is strong due to positive expectations around GST reform and healthy demand."

US tariff impact

India's manufacturing sector has come under pressure following a series of steep US tariffs on a wide range of Indian exports. Washington imposed a 25% tariff on almost all Indian goods in August, followed by an additional 25% levy later that month to penalize New Delhi for buying discounted Russian oil.

According to SBI Capital Markets' latest EcoCapsule, a monthly economic analysis, the tariffs are already generating about $30 billion in revenue each month for the US government, with India among the hardest hit, facing an effective duty burden of about 50% since late August.

"The latest improvement in international demand for Indian goods was marked, though the least pronounced in the calendar year-to-date," the latest HSBC PMI survey said.

Meanwhile, survey respondents reported that buoyant demand encouraged them to build up their inventories as many firms met sales by drawing down existing supplies.

"Regarding the outlook, manufacturers attributed positive expectations to GST reform, expanded capacities, and marketing efforts," the survey said. "They also predicted demand resilience and hope that pending contracts will be approved."