India's factory growth hits 3-month high
What's the story
India's manufacturing sector witnessed the fastest growth in three months in May, owing to strong domestic demand and a spike in new orders. The HSBC India Manufacturing Purchasing Managers' Index (PMI), compiled by S&P Global, rose to 55 from April's 54.7, beating an earlier estimate of 54.3. A reading above 50 indicates expansion in the sector.
Demand surge
New orders rise, driven by domestic demand
The growth in new orders, a key indicator of demand, was the fastest since February. This was mainly due to civil engineering projects, competitive pricing, and favorable demand conditions. Domestic demand was the main driver of growth with export orders also expanding but at a slower pace than before.
Production boost
Factory output and hiring trends
Factory output grew at its fastest pace in three months, with intermediate and capital goods leading the way. However, growth eased for consumer goods makers. Hiring also continued but at a slower pace than April. This indicates that while production is on the rise, companies are being cautious about expanding their workforce too quickly.
Cost pressures
Input price inflation rises
Input price inflation was the second-highest in nearly four years, after April, due to rising costs of energy, fuel, materials, and transportation. The US-Iran war was cited as a contributing factor. Capital goods producers witnessed the highest cost increases among the three sub-sectors monitored. Meanwhile, selling price inflation eased from April but remained below input cost growth rates as competitive pressures limited firms from fully passing on costs to customers.
Market outlook
Purchasing activity and business confidence
Despite high costs, manufacturers ramped up purchasing activity at the fastest rate in three months, partly to build contingency stocks. However, business confidence fell to its lowest since February but remained positive. Companies expressed hope that cost pressures would ease, supported by strong order pipelines and marketing efforts.