India factory growth beats flash estimate as demand holds firm
Its PMI hit a three-month high of 55.0 in May.
India’s manufacturing sector expanded at its strongest pace in three months during May, with activity beating earlier estimates as demand held firm despite escalating cost burdens linked to the protracted conflict in the Middle East.
The HSBC India Manufacturing Purchasing Managers’ Index rose to 55.0 last month, up from 54.7 in April and above the preliminary “flash” reading of 54.3 released a fortnight ago. Any figure above 50 signals improvement in sector health.
New orders and output both grew at their fastest rates since February, driven primarily by intermediate and capital goods producers. Survey respondents attributed the upturn to robust domestic demand, infrastructure projects and new client wins.
Export orders also expanded, with gains reported from Asia, Europe and markets in Africa and the Middle East, though the pace of international sales growth eased relative to domestic momentum.
The figures point to a wave of precautionary stockpiling among Indian manufacturers. Input purchasing rose sharply — at its quickest pace in three months — as firms sought to build contingency inventories.
Stocks of finished goods also climbed, posting the highest rate of accumulation in 11 years, with some companies indicating that supply had begun to outpace demand. Cost pressures remained a significant concern.
Input prices rose at the second-fastest rate in more than four years, with firms citing higher outlays on energy, fuel, raw materials and transportation.
Capital goods producers faced the steepest cost inflation, followed by intermediate and consumer goods makers.
Factory gate prices rose solidly but at a slower pace than input costs, and below the average seen over the past year, suggesting that competitive pressures are preventing manufacturers from passing on the full burden to customers. Some analysts warned this dynamic could squeeze profit margins in the months ahead.
Employment growth continued for another month, though the rate of job creation slowed from April. Business confidence remained broadly positive, with firms expressing hope that cost pressures would ease later in the year.
Pranjul Bhandari, Chief India Economist at HSBC, said the results pointed to “another month of possible precautionary stockpiling as the Middle East conflict remains unresolved,” adding that whilst output growth had accelerated, the gap between input cost inflation and slower output price rises suggested “a potential squeeze on manufacturers’ margins.”
