India's manufacturing sector activity moderated in April, but still recorded the second fastest improvement in operating conditions in three-and-a-half years supported by buoyant demand, a monthly survey said on Thursday.

The seasonally adjusted HSBC India Manufacturing Purchasing Managers' Index (PMI) fell from 59.1 in March to 58.8 in April, signalling the second-best improvement in the health of the sector for three-and-a-half years.

In Purchasing Managers' Index (PMI) parlance, a print above 50 means expansion while a score below 50 denotes contraction.

According to Pranjul Bhandari, Chief India Economist at HSBC, strong demand conditions which resulted in a further expansion of output, albeit slightly slower than in March.

Indian manufacturers reported robust demand for their goods in April, from domestic and external clients. Total new orders rose sharply, with the pace of expansion being the second strongest since the start of 2021, the report said.

Moreover, new export orders increased markedly in April, albeit at a softer rate than that seen for total sales, suggesting that the domestic market remained the main driver of growth.

The survey further noted that Indian goods producers forecast higher output in the year ahead, relative to present levels. Moreover, business confidence strengthened in April on the back of expectations that demand will remain buoyant.

To fulfil current and expected improvements in demand, manufacturers hired additional staff at the start of the first fiscal quarter.

"Improvements in suppliers' delivery times contributed to increased purchasing activity. Additionally, a positive outlook for the year ahead prompted firms to expand their staffing levels," Bhandari said.

Amid reports of higher material and labour costs, Indian manufacturers increased their selling prices in April.

"On the price front, higher costs of raw materials and labour led to a modest uptick in input costs, but inflation remains below the historical average," Bhandari said.

However, firms passed these increases onto consumers through higher output charges, as demand remained resilient, resulting in improved margins, Bhandari added.

The HSBC India Manufacturing PMI® is compiled by S&P Global from responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers.

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