India's manufacturing sector expanded at its fastest pace in three months during May, driven by robust domestic demand, infrastructure-related activity, and a surge in new business orders. However, elevated costs stemming from the ongoing Middle East conflict continued to weigh on manufacturers, according to a monthly survey released on Monday.
PMI Rises to 55.0
The seasonally adjusted HSBC India Manufacturing Purchasing Managers' Index (PMI) climbed to 55.0 in May, up from 54.7 in April, signaling the strongest improvement in operating conditions since February, as reported by news agency PTI. In PMI terminology, a reading above 50 indicates expansion, while a figure below 50 denotes contraction.
According to the survey, manufacturers recorded the fastest growth in output and new orders in three months, attributing the upturn to strong demand, infrastructure projects, and fresh business gains.
Stockpiling and Geopolitical Uncertainty
Pranjul Bhandari, Chief India Economist at HSBC, noted: "India's final manufacturing PMI points to another month of possible precautionary stockpiling as the Middle East conflict remains unresolved. Output growth accelerated, while purchasing activity and stocks of finished goods rose at a faster pace."
The survey revealed that domestic demand remained the primary growth driver, while export orders continued to rise but at a slower pace. Manufacturers also stepped up purchasing activity during the month despite elevated input costs. The increase in buying levels was the strongest in three months and was partly driven by efforts to build contingency inventories amid ongoing geopolitical uncertainty.
Inflation and Margin Squeeze
On the inflation front, companies continued to face higher spending on energy, fuel, raw materials, and transportation due to the conflict in the Middle East. "Input cost inflation eased slightly on the month, and output price inflation slowed more sharply, suggesting a potential squeeze on manufacturers' margins," Bhandari said.
Employment and Business Sentiment
The survey also pointed to continued job creation across the manufacturing sector as firms expanded workforce numbers to meet higher production requirements, although the pace of hiring moderated from April.
Business sentiment remained positive, supported by expectations that cost pressures could ease later in the year. Companies also cited advertising efforts and strong order pipelines as factors underpinning confidence about future growth prospects.
The HSBC India Manufacturing PMI is compiled by S&P Global based on responses from purchasing managers at around 400 manufacturing companies.
