India's factory activity growth hits three-month low, PMI shows

By Shaloo Shrivastava

BENGALURU (Reuters) - India's manufacturing activity growth eased to a three-month low in August as demand softened significantly, a private-sector survey showed on Monday, casting another shadow over the otherwise robust economic outlook.

Growth in Asia's third-largest economy slowed to 6.7% last quarter from 7.8% as government spending fell, official data showed on Friday.

The HSBC final India Manufacturing Purchasing Managers' Index, compiled by S&P Global, fell for a second month in August, dropping to 57.5 from July's 58.1 and below a preliminary estimate of 57.9.

Despite falling, the index beat its average and held above the 50-mark that separates growth from contraction, where it has been since July 2021.

It was supported by demand that remained upbeat despite some recent softening. The output and new orders sub-indexes - gauges of demand - both slipped to seven-month lows. International demand grew at its weakest pace since January but stayed strong.

"New orders and output also mirrored the headline trend, with some panellists citing fierce competition as a reason for slowdown," noted Pranjul Bhandari, chief India economist at HSBC.

While cost pressures were the lowest since March this year, output price inflation was close to July's near 11-year high as resilient demand allowed firms to easily pass on extra costs to clients.

"In line with input costs, the pace of output price inflation also decelerated, but the deceleration was to a much smaller extent, thereby increasing margins for manufacturers," added Bhandari.

Inflation in India fell to a near five-year low of 3.54% in July, largely due to the high-base effect, indicating the slowdown was temporary. The Reserve Bank of India (RBI) is expected to cut interest rates next quarter by 25 basis points.

Upbeat demand and business optimism led companies to add headcount for the sixth month running, although hiring slowed for a second consecutive month.

The year-ahead outlook was robust even though it hit a 16-month low. Optimism was dented by inflation and competition concerns.

(Reporting by Shaloo Shrivastava; Editing by Sam Holmes)