India’s manufacturing PMI rises to 3-month high in May on strong domestic demand

India's manufacturing sector expanded at its fastest pace in three months in May, supported by strong domestic demand, infrastructure-led activity and rising new business orders, even as higher costs linked to the Middle East conflict continued to weigh on manufacturers, a monthly survey showed on Monday.

The seasonally adjusted HSBC India Manufacturing Purchasing Managers' Index (PMI) rose to 55.0 in May from 54.7 in April, signalling the strongest improvement in operating conditions since February, reported news agency PTI.

In PMI terminology, a reading above 50 indicates expansion, while a print below 50 denotes contraction.

According to the survey, manufacturers recorded the fastest growth in output and new orders in three months, with firms attributing the upturn to demand strength, infrastructure projects and fresh business gains.

"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.

The survey showed that domestic demand remained the primary growth driver, while export orders continued to rise but at a slower pace.

Manufacturers also stepped up purchasing activity during the month despite elevated input costs. The increase in buying levels was the strongest in three months and was partly driven by efforts to build contingency inventories amid ongoing geopolitical uncertainty.

On the inflation front, companies continued to face higher spending on energy, fuel, raw materials and transportation due to the conflict in the Middle East.

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

The survey also pointed to continued job creation across the manufacturing sector as firms expanded workforce numbers to meet higher production requirements, although the pace of hiring moderated from April.

Business sentiment remained positive, supported by expectations that cost pressures could ease later in the year. Companies also cited advertising efforts and strong order pipelines as factors underpinning confidence about future growth prospects.

The HSBC India Manufacturing PMI is compiled by S&P Global based on responses from purchasing managers at around 400 manufacturing companies

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