Amid the ongoing Middle East conflict, India's manufacturing sector experienced robust growth in May, expanding at the fastest pace in three months. The expansion was supported by strong demand, continued infrastructure spending, and a rise in new business orders, according to a monthly survey.
HSBC India Manufacturing PMI Rises to 55.0
The seasonally adjusted HSBC India Manufacturing Purchasing Managers’ Index (PMI) increased to 55.0 in May from 54.7 in April, indicating a stronger improvement in operating conditions. This reading is the highest in three months. A PMI reading above 50 signifies expansion, while below 50 indicates contraction.
Key Drivers of Growth
Manufacturers reported the strongest growth in output and fresh orders since February. Survey participants attributed this improvement to healthy demand conditions, progress in infrastructure-related projects, and an increase in new business inflows. Domestic demand remained the primary growth driver, while export orders continued to expand but at a slower pace than local market growth.
Inventory Building Amid Uncertainty
According to HSBC Chief India Economist Pranjul Bhandari, the latest PMI data suggests Indian factories may have continued building buffer inventories due to persistent uncertainty surrounding the Middle East conflict. Manufacturing activity picked up in May, with output growth strengthening and companies increasing purchases of raw materials. Stocks of finished goods also rose at a faster rate.
Cost Pressures and Margins
Cost pressures remained elevated, with manufacturers reporting higher spending on fuel, energy, transportation, and raw materials, reflecting the impact of geopolitical tensions. Input cost inflation eased marginally in May, while selling price inflation moderated more sharply, potentially squeezing manufacturers' margins.
Employment and Business Sentiment
Despite higher costs, companies increased buying activity at the fastest pace in three months, with many maintaining contingency inventories due to supply uncertainties. Hiring continued, though the pace of job creation softened from April. Business sentiment remained upbeat, with many firms expecting cost pressures to ease later in the year, supported by advertising efforts and a steady flow of new orders.
The HSBC India Manufacturing PMI is compiled by S&P Global based on responses from a panel of around 400 manufacturing purchasing managers across the country.
