After losing momentum in March due to the West Asia conflict, growth across India’s private sector has expanded at a quicker rate since the start of the new fiscal year. It maintained that expansion in May, with survey data indicating a quicker upturn for manufacturers and improvement in both new orders and production during the month.
The rate of growth across India’s manufacturing industry came in even stronger than the flash estimates released by HSBC India just 10 days ago, with purchasing prices rising at their second-fastest pace since April 2022 (behind April), while the rate of output charge inflation remained below the average over the past year.
The HSBC India Manufacturing Purchasing Managers’ Index (PMI) improved to 55.0 in May from 54.7 in April, and also remained above the flash figure reading of 54.3, underscoring an improvement in domestic momentum. A PMI reading above 50 indicates an expansion and below 50 a contraction.
According to the data released on Monday, goods producers reported their fastest growth in new orders and output since February. The survey noted that this momentum was driven by strong gains in the intermediate and capital goods segments, which offset a slowdown among consumer goods manufacturers.
The data showed that the domestic market provided impetus to growth, as new export orders rose at a slower pace. The expansion in international sales was nevertheless solid, with survey panellists highlighting gains from Asia, Europe, Kenya, Nigeria and the Middle East.
Cost pressures
The continued to exert pressure on costs, the survey noted, with panel members signalling greater outlays on energy, fuel, materials and transportation. Aside from this April, input price growth was the strongest it has been in 45 months, the survey said. Capital goods topped the sectoral ranking for input cost inflation, followed by intermediate goods and consumer goods.
Although factory gate charges across India rose in May, the was below both the surge in input costs and the average inflation rate recorded over the past year. The survey said while 8% of companies passed on cost increases to customers, others refrained from doing so due to competitive pressures.
Notwithstanding sharp increases in input costs, goods producers purchased more materials in May. Moreover, the pace of growth in buying levels was the quickest in three months and above the historical average, the survey said.
Pranjul Bhandari, chief India economist at HSBC, said, “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. New order growth was driven by domestic demand, as export order growth moderated. Input cost inflation eased slightly on the month, and output price inflation slowed more sharply, suggesting a potential squeeze on manufacturers’ margins.”
According to the survey, input cost inflation sparked attempts by producers to raise contingency stocks. With delivery times shortening again in May, albeit to a lesser extent, Indian manufacturers recorded a further increase in pre-production inventories, it said, adding that the pace of accumulation was at a three-month high.
“The latest results showed back-to-back increases in stocks of finished goods, with monitored companies stating that supply exceeded demand. Although moderate, the pace of accumulation was the highest in 11 years,” the survey said.
With increased production, India’s manufacturing industry saw another round of , it noted. The rate of expansion was solid, despite slowing from April.
Business confidence remained high as companies anticipated that cost pressures would ease later this year. According to the survey, optimism was further bolstered by aggressive advertising and robust order pipelines.
The HSBC India Manufacturing PMI is compiled by S&P Global from responses to questionnaires sent to purchasing managers from a panel of around 400 manufacturers. The panel is organised by industry sector and company size to accurately reflect each group’s contribution to the economy.