India’s manufacturing sector showed renewed momentum in May, with activity levels improving to their strongest point in three months. The rise was largely driven by solid domestic demand, increased production, and higher purchasing activity, despite persistent cost pressures and global uncertainties.
India’s manufacturing sector recorded a notable improvement in May, as the Purchasing Managers’ Index (PMI) rose to 55.0, up from 54.7 in April. This marks the highest level in three months and signals continued expansion in the sector. The reading also surpassed the earlier flash estimate of 54.3, indicating stronger-than-expected performance.
A PMI reading above 50 reflects expansion, while a figure below that threshold signals contraction. With May’s data comfortably above this mark, it underscores the resilience of India’s manufacturing ecosystem even amid global economic challenges.
The growth in manufacturing activity was primarily fueled by a sharp rise in new orders, increased output, and stronger purchasing activity. Companies reported the fastest pace of expansion in these areas since February, highlighting improving business conditions.
Domestic demand played a crucial role in driving this growth. Infrastructure-related activities and new business opportunities further boosted order inflows. Among various segments, intermediate and capital goods sectors witnessed particularly strong expansion, while consumer goods manufacturers experienced relatively slower growth.
While export orders continued to increase, the pace of growth slowed compared to April. Despite this moderation, Indian manufacturers still reported steady demand from global markets, including Asia, Europe, and parts of Africa such as Kenya and Nigeria, along with West Asia.
This indicates that although international demand remains supportive, global uncertainties and geopolitical tensions may be influencing the pace of export growth.
One of the major concerns highlighted in the survey was the continued rise in input costs. Manufacturers faced increasing expenses related to fuel, energy, raw materials, and transportation. These cost pressures were among the highest recorded since April 2022.
The ongoing geopolitical tensions in West Asia have played a significant role in driving up commodity prices and disrupting supply chains. As a result, manufacturers are facing higher operational costs, which could impact profitability if not managed effectively.
In response to global uncertainties and supply chain disruptions, many companies increased their purchases of raw materials. This led to the fastest rise in purchasing activity in three months.
Firms also focused on building contingency inventories to safeguard against potential supply shortages. Both stocks of raw materials and finished goods saw significant increases. Notably, the accumulation of finished goods reached its highest level in over a decade, reflecting precautionary measures taken by businesses.
Despite slightly easing input cost inflation, manufacturers faced pressure on profit margins. Output price inflation slowed more sharply than input costs, indicating that companies may not be fully passing on increased costs to consumers.
This trend suggests a potential squeeze on margins, as businesses balance the need to remain competitive while managing rising expenses.
The manufacturing sector continued to generate employment in May, with firms hiring additional workers to meet rising production demands. However, the pace of job creation slowed slightly compared to April.
This indicates that while companies remain optimistic about future demand, they are also cautious in expanding their workforce amid ongoing economic uncertainties.
Overall business sentiment in the manufacturing sector remained optimistic. Companies expressed confidence in future growth, supported by strong order pipelines and expectations that cost pressures may ease later in the year.
The positive outlook reflects resilience in the sector, driven by domestic demand and ongoing investments in infrastructure and industrial activity.
According to HSBC’s Chief India Economist, the rise in PMI suggests that manufacturers may be engaging in precautionary stockpiling due to unresolved geopolitical tensions. While output and purchasing activity have increased, the moderation in export growth indicates a shift toward domestic demand as the primary growth driver.
The combination of rising inventories, steady domestic demand, and cautious optimism paints a balanced picture of the sector’s current health.
Conclusion: Resilience Amid Challenges
India’s manufacturing sector continues to demonstrate strength, with May’s PMI data highlighting steady expansion and improved business conditions. Strong domestic demand, increased production, and proactive inventory management have helped offset challenges such as rising costs and global uncertainties.
However, sustaining this momentum will depend on how effectively manufacturers manage input cost pressures and navigate evolving global dynamics. If cost inflation stabilizes and demand remains strong, the sector is well-positioned for continued growth in the coming months.