India’s manufacturing sector experienced a slowdown in growth during May, with the HSBC final India Manufacturing Purchasing Managers’ Index falling to 57.5 from 58.8 in April. Despite this decline, the index remained above the 50-mark, indicating continued expansion in the sector. The slowdown was attributed to a combination of factors, including a heatwave that led some companies to reduce working hours and election-related disruptions.
Despite the challenges, India’s manufacturing sector remained robust, supported by strong international sales.New export orders rose at the fastest pace in over 13 years, with broad-based demand across various regions. This growth in exports has been ongoing for 26 consecutive months. The positive sentiment among firms reached its highest level in more than nine years, driven by expectations of continued buoyant demand. As a result, companies increased their hiring at the fastest pace since November 2022.
However, the strong demand also led to a steeper increase in both input and output prices. Corporate cost burdens accelerated in May, with the rate of inflation reaching its joint-highest level in 21 months. Manufacturers were only able to partially pass on these increased costs to consumers, resulting in a squeeze on manufacturing margins. Higher prices for electronic components, packaging, plastics, and steel contributed to the rising costs.
Inflation in India has remained within the Reserve Bank of India’s (RBI) target range of 2%-6% since September 2023, and a Reuters poll predicted that it would remain below 5.0% until the end of the fiscal year 2025-26. The RBI is expected to maintain its repo rate on hold during its June 7 meeting, with potential interest rate cuts anticipated in the October-December quarter, according to the Reuters survey.
Despite the challenges, India’s manufacturing sector remained robust, supported by strong international sales.New export orders rose at the fastest pace in over 13 years, with broad-based demand across various regions. This growth in exports has been ongoing for 26 consecutive months. The positive sentiment among firms reached its highest level in more than nine years, driven by expectations of continued buoyant demand. As a result, companies increased their hiring at the fastest pace since November 2022.
However, the strong demand also led to a steeper increase in both input and output prices. Corporate cost burdens accelerated in May, with the rate of inflation reaching its joint-highest level in 21 months. Manufacturers were only able to partially pass on these increased costs to consumers, resulting in a squeeze on manufacturing margins. Higher prices for electronic components, packaging, plastics, and steel contributed to the rising costs.
Inflation in India has remained within the Reserve Bank of India’s (RBI) target range of 2%-6% since September 2023, and a Reuters poll predicted that it would remain below 5.0% until the end of the fiscal year 2025-26. The RBI is expected to maintain its repo rate on hold during its June 7 meeting, with potential interest rate cuts anticipated in the October-December quarter, according to the Reuters survey.