Economic strength: India’s manufacturing sector growth accelerates to 3-month high in May amid Middle East conflict

Amid the Middle East conflict, India’s manufacturing saw robust growth, with activity gathering momentum in May and expanding at the fastest pace in three months. The growth is supported by robust demand, ongoing infrastructure spending and a rise in new business orders, according to a monthly survey.The HSBC India Manufacturing PMI is a widely tracked indicator that assesses overall manufacturing performance based on factors such as new orders, production levels, employment trends, supplier delivery times and inventory holdings.The seasonally adjusted HSBC India Manufacturing Purchasing Managers’ Index (PMI) rose to 55.0 in May from 54.7 in April, signalling a stronger improvement in operating conditions across the sector. The latest reading marked the highest level recorded in three months.Under PMI methodology, a reading above 50 indicates expansion in activity, while a figure below 50 points to a contraction.Manufacturers reported the strongest growth in output and fresh orders since February. Survey participants attributed the improvement primarily to healthy demand conditions, progress in infrastructure-related projects and an increase in new business inflows.The latest manufacturing PMI data indicates that Indian factories may have continued building buffer inventories as uncertainty around the Middle East conflict persists, according to HSBC Chief India Economist Pranjul Bhandari.Manufacturing activity picked up pace in May, with output growth strengthening and companies stepping up purchases of raw materials. Stocks of finished goods also increased at a faster rate.Survey data showed that domestic demand remained the key growth driver. Export orders continued to expand, but the pace was slower compared with the growth seen in the local market.Cost pressures, however, remained elevated. Manufacturers reported higher spending on fuel, energy, transportation and raw materials, reflecting the continuing impact of geopolitical tensions in the Middle East.According to Bhandari, input cost inflation eased marginally during the month. Selling price inflation, meanwhile, moderated more sharply, which could put pressure on manufacturers' margins.Despite higher costs, companies increased buying activity. Purchase volumes rose at the fastest pace in three months and remained above historical averages, with many firms opting to maintain contingency inventories amid supply-related uncertainties.The need to support higher production levels also resulted in further hiring across the sector. While the pace of job creation softened from April, employment continued to expand at a healthy rate.Business sentiment remained upbeat. Many firms expect cost pressures to ease later in the year, while advertising efforts and a steady flow of new orders helped underpin confidence about future growth.The HSBC India Manufacturing PMI is compiled by S&P Global using responses from a panel of around 400 manufacturing purchasing managers across the country.