India's Manufacturing Sector Sees Surge in Growth Amid Inflation Concerns

Manufacturing Activity Reaches New Heights

New Delhi: The growth of India's manufacturing sector reached a three-month peak in May, fueled by robust demand, ongoing infrastructure projects, and new business opportunities, despite facing inflationary challenges, according to a recent monthly survey.

The seasonally adjusted HSBC India Manufacturing Purchasing Managers' Index (PMI) recorded a score of 55.0 in May, an increase from April's 54.7, indicating the most significant improvement in the sector's performance in three months.

The PMI serves as a comprehensive indicator of manufacturing conditions, reflecting new orders, production levels, employment rates, supplier delivery times, and inventory levels.

In PMI terminology, a score above 50 signifies expansion, while a score below indicates contraction.

Manufacturers reported the quickest growth in new orders and production since February, attributing this upturn to strong demand, infrastructure initiatives, and new business acquisitions.

"The final manufacturing PMI for India suggests another month of potential precautionary stockpiling due to the ongoing conflict in the Middle East. Output growth has accelerated, and purchasing activity along with finished goods inventories have increased at a quicker rate," stated Pranjul Bhandari, Chief India Economist at HSBC.

The data revealed that domestic demand was a key driver of growth, although new export orders increased at a slower rate.

On the pricing front, the Middle East conflict continued to impact cost pressures. Survey participants indicated higher expenses related to energy, fuel, materials, and transportation.

"While input cost inflation slightly decreased this month, output price inflation saw a more significant decline, indicating a potential squeeze on manufacturers' profit margins," Bhandari added.

Despite the sharp rise in input costs, manufacturers increased their material purchases in May, with the growth rate being the fastest in three months and surpassing historical averages, driven by efforts to build contingency stocks.

Additionally, increased production needs led to another wave of job creation within India's manufacturing sector, with the growth rate remaining solid, albeit slower than in April.

Business sentiment remained optimistic, with companies anticipating a reduction in cost pressures later in the year. Strong advertising and healthy order backlogs further bolstered confidence in growth prospects.

The HSBC India Manufacturing PMI is compiled by S&P Global based on responses from approximately 400 manufacturers.