In May, India’s manufacturing sector experienced its most significant growth in three months, according to the HSBC India Manufacturing Purchasing Managers’ Index (PMI) compiled by S&P Global. The PMI rose to 55.0 from April’s 54.7, surpassing the preliminary estimate of 54.3. A PMI reading above 50.0 indicates growth in the sector.

Domestic Demand Fuels Growth

The primary driver of this growth was domestic demand, with new orders increasing at the fastest rate since February. This surge was attributed to civil engineering projects, competitive pricing, and favorable demand conditions. While export orders continued to expand, they did so at the slowest pace in three months.

Factory output also rose at its quickest pace in three months, with intermediate and capital goods leading the way. However, consumer goods makers experienced a slowdown in growth.

Cost Pressures and Business Optimism

Despite the growth, the sector faced significant cost pressures, with input price inflation being the second-strongest in nearly four years, excluding April. This was driven by higher costs for energy, fuel, materials, and transportation, partly due to the ongoing Middle East conflict. Capital goods producers were particularly affected by these cost increases.

Selling price inflation eased from April, remaining below the rate of input cost growth as competitive pressures prevented firms from passing on the full burden to customers. Manufacturers increased purchasing activity sharply, partly to build contingency stocks in response to elevated costs.

Business confidence, while still positive, fell to its lowest level since February. Companies remain hopeful that cost pressures will ease, supported by strong order pipelines and marketing efforts.

Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.