India’s manufacturing sector showed significant growth in March, reaching its highest expansion rate in eight months, driven by robust domestic demand. The HSBC India Manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, rose to 58.1 in March, up from 56.3 in February. This figure exceeded a preliminary estimate of 57.6 and remained well above the neutral threshold of 50.0 that indicates growth versus contraction.

The increase in the PMI reflects strong demand for new orders and output, both of which rose at their quickest pace since July. However, export orders grew at the slowest rate in three months, indicating a potential slowdown in global demand. Pranjul Bhandari, chief India economist at HSBC, noted that strong domestic demand led firms to deplete their inventories, resulting in the fastest decrease in finished goods stocks in over three years.

Approximately 30% of survey participants anticipated an increase in output over the next year, a stark contrast to less than 2% who expected a contraction. This positive outlook encouraged companies to continue expanding their workforce, although the pace of hiring slowed. Despite facing higher input costs, with inflation reaching a three-month high, firms reported a slowdown in output price inflation to its lowest level in a year.

In February, India’s retail inflation fell below the Reserve Bank of India’s (RBI) medium-term target of 4% for the first time in six months. A Reuters poll suggested that the central bank is likely to implement another rate cut during its meeting on April 9.