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India’s manufacturing growth slowed to a three-month low in May as intensive heatwave hampered production volumes leading to a softer rise in new orders and output. But the sector remained in expansionary territory in May.
The headline Purchasing Managers’ Index (PMI) figure, released by HSBC on Monday, slipped to 57.5 in May from 58.8 in April.
“Companies indicated that working hours had been reduced amid an intensive heatwave, which somewhat hampered production volumes. New orders also rose at a softer pace, but international sales increased to the greatest extent in over 13 years,” said the survey.
A figure above 50 in the index denotes expansion and that below signifies contraction.
Despite this mild loss of growth momentum, India’s manufacturing sector remained firmly in expansion midway through the first fiscal quarter, as growth was supported by new business gains, demand strength and successful marketing efforts.
“New orders rose at a substantial pace that was nonetheless the slowest in three months. The rise was associated with marketing efforts, demand strength and favourable economic conditions. Growth was reportedly stymied by competition and election-related disruptions,” the survey said.
Meanwhile, on the export front, new export orders rose at a faster pace in May. The upturn was the strongest in over 13 years as firms noted gains from customers across several countries in Africa, Asia, the Americas, Europe and the Middle East.
Pranjul Bhandari, chief India economist at HSBC, said that the manufacturing sector remained in expansionary territory in May, albeit the pace of expansion slowed, led by a softer rise in new orders and output as panellists cited heatwave as a reason for lower work hours in May, which may have affected production volumes.
“In contrast, new export orders rose at the fastest pace in over 13 years, with a broad-based demand across geography. On the price front, higher raw material and freight costs led to a rise in input prices. Manufacturers were only able to pass on a part of this increase to consumers, resulting in a squeeze in manufacturing margins. The positive news is that May recorded the highest level of positive sentiment among manufacturing firms in just under a decade, resulting in increased job creation,” she said.
On the job creation front, the survey noted that ongoing strong sales performances combined with upbeat growth forecasts fuelled job creation in May as manufacturing employment rose to one of the greatest extents seen since data collection started in March 2005.
“Jobs growth, parallel to rising material and freight costs, underpinned a quicker increase in input costs at goods producers. The overall rate of inflation remained below its long-run average, but picked up to its joint-highest since August 2022. In response to the latest increase in operating expenses companies raised their own selling prices in May. The rate of charge inflation quickened to an eight-month high.” the survey noted.
The May manufacturing PMI came below the flash estimate of 58.4 for the month and it marks the manufacturing output rising for the 35th consecutive month since July 2021.
