India's manufacturing PMI rises to three-month high of 55.0 in May on robust demand

India's manufacturing activity strengthened in May, with the Purchasing Managers' Index (PMI) rising to a three-month high of 55.0 from 54.7 in April, according to data compiled by S&P Global on Monday. 

A PMI reading above 50 indicates expansion in activity. 

The improvement was driven by stronger demand conditions, with new orders, a key gauge of demand, growing at the fastest pace since February. Survey participants attributed the increase to civil engineering projects, competitive pricing strategies and favourable market conditions. 

Domestic demand remained the primary growth driver

Domestic demand remained the primary growth driver. While export orders continued to expand at a healthy pace, their growth moderated to the weakest level in three months. 

Factory output also accelerated, recording its fastest growth in three months. The expansion was led by intermediate and capital goods producers, while growth among consumer goods manufacturers eased during the month. 

Manufacturers continued to add jobs in May, although the pace of hiring slowed compared with April. 

Input price inflation remained elevated

On the cost front, input price inflation remained elevated and was the second-highest recorded in nearly four years, excluding April's reading. Companies cited higher expenses for energy, fuel, raw materials and transportation, with the conflict in West Asia contributing to cost pressures. Among the three sectors tracked, capital goods manufacturers reported the sharpest increase in input costs. 

"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," said Pranjul Bhandari, Chief India Economist at HSBC.

"Input cost inflation eased slightly on the month, and output price inflation slowed more sharply, suggesting a potential squeeze on manufacturers’ margins," Bhandari said.

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

Manufacturers nevertheless sharply increased purchasing activity, recording the fastest growth in three months, partly to build contingency inventories amid concerns over future supply disruptions and costs. 

Business confidence weakened to its lowest level since February, though overall sentiment remained positive. Firms expressed optimism that cost pressures would ease in the coming months, supported by strong order pipelines and ongoing marketing initiatives.