India's manufacturing sector growth fell to a three-month low in May but it still remained resilient. The HSBC India Manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, fell to 57.6 in May from 58.2 in April—a three-month low. This marks the weakest improvement in operating conditions since February. Despite the moderation, the index remains firmly above the neutral 50-mark and its long-run average of 54.1, indicating continued growth in the sector.
The slight cooling in momentum was driven by softer, yet still robust, increases in new orders and output. Surveyed firms pointed to strong domestic and international demand, supported by effective marketing, as key growth drivers. However, some manufacturers cited rising competition, inflationary pressures and geopolitical tensions with Pakistan as headwinds.
Employment was a bright spot. Hiring rose at a record pace, with permanent job roles making up a large share of the additions. Sustained job creation enabled manufacturers to stay on top of their workloads in May, ending a six-month streak of rising backlogs.
Export orders surged, registering one of the strongest growth rates in the last three years. Demand was particularly strong from Asia, Europe, the Middle East and the US. Positive sales developments encouraged companies to purchase additional inputs for use in production processes. The pace of expansion was sharp and eased only marginally since April. Stockpiles of finished goods, however, continued to fall—albeit at a slower rate.
Rising costs added pressure to margins. Input price inflation climbed to its highest since November 2024, with firms reporting increased costs for raw materials like aluminium, cement, rubber, and leather, as well as for freight and labour. In response, many manufacturers hiked selling prices—one of the sharpest rises in over a decade.
Despite the challenges, manufacturers remained optimistic about the future. Expectations for output over the next year were high, underpinned by advertising and a rise in customer enquiries.
"India’s May manufacturing PMI signalled another month of robust growth in the sector, although the rate of expansion in output and new orders eased from the previous month. The acceleration in employment growth to a new peak is certainly a positive development. Input cost inflation is picking up, but manufacturers seem to be able to lessen the pressure on profit margins by raising output prices," notes Pranjul Bhandari, Chief India Economist at HSBC.
May data highlighted a further improvement in supply chain performance, as average lead times shortened to the greatest extent in four months. Subsequently, goods producers noted another increase in stocks of purchases. The pace of accumulation was the second-fastest since August 2024. Conversely, inventories of finished goods decreased for the sixth straight month. The drop was solid, but the slowest since February. Indian manufacturers remained strongly confident of a rise in output over the course of the coming 12 months. Among the main opportunities to growth, they remarked on advertising and new customer enquiries, the report said.
