India Manufacturing PMI Reaches 3-Month High in May Amid Increasing Costs

India's Manufacturing Sector Expands at Fastest Pace in Three Months

India's manufacturing sector has experienced a significant boost in May, with the HSBC India Manufacturing Purchasing Managers' Index (PMI) reaching 55.0, surpassing the flash estimate of 54.3 and rising from 54.7 in April. This marks the fastest pace of expansion in three months, according to a survey released on Monday.

The survey, compiled by S&P Global, indicates that demand conditions remained robust during the month, with new orders growing at the fastest pace since February. The increase in demand was attributed to favourable market conditions, competitive pricing, and demand from civil engineering projects. Domestic demand remained the primary driver of growth, while export orders continued to expand at a solid pace, albeit at the slowest rate in three months.

Manufacturing output also strengthened, rising at its fastest pace in three months. Intermediate and capital goods producers led the increase in production, while growth among consumer goods manufacturers moderated. Companies continued to add workers in May, although the pace of job creation slowed compared with April.

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However, input cost pressures remained elevated, with input price inflation recording its second-highest reading in nearly four years, excluding April. Manufacturers reported higher expenses for energy, fuel, raw materials, and transportation. Some respondents cited the ongoing conflict in the Middle East as a factor contributing to rising costs. Among the sectors tracked, capital goods producers faced the sharpest increase in input prices.

Despite the rise in costs, selling price inflation eased from April and remained below the pace of input cost growth, indicating that competitive pressures limited companies' ability to fully pass on higher expenses to customers.

Manufacturers responded by sharply increasing purchasing activity, which expanded at the fastest rate in three months. Some firms reported building contingency inventories to guard against potential supply disruptions and further cost increases.

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Meanwhile, business confidence weakened to its lowest level since February. However, overall sentiment remained positive, supported by expectations of easing cost pressures, strong order books, and continued marketing efforts.