Manufacturing PMI hits 31-month high on robust demand for Indian products

India's factory output in May rose at the fastest pace in 31 months, aided by robust demand for Indian-made products, both domestically and internationally.

The seasonally adjusted S&P Global India Manufacturing Purchasing Managers' Index (PMI) rose from 57.2 in April to 58.7 in May, indicating the strongest improvement in the health of the sector since October 2020.

A reading above 50 indicates an overall increase in output compared to the previous month.

"While the upturn in domestic orders strengthens the foundations of the economy, rising external business foster international partnerships and boost India's position in the global market," says Pollyanna De Lima, economics associate director at S&P Global Market Intelligence.

Demand conditions demonstrated remarkable strength, with factory orders rising at the fastest pace since January 2021, shows the PMI survey.

This surge in sales paved the way for stronger increases in production, employment and quantities of purchases. With supply chain conditions improving further, companies noted a record accumulation in input inventories.

"The record increase in input stocks shows a better preparedness of manufacturers in managing supply chains. This should allow firms to mitigate potential disruptions, maintain a steady flow of production and demonstrate the industry's resilience in the face of challenges," says Lima.

May data indicated a sharp and accelerated increase in quantities of purchases, with the rate of expansion quickening to the strongest in over 12 years. According to survey members, ongoing increases in new business and efforts to replenish stocks underpinned growth of buying levels.

Not only did factory orders increase for the twenty-third month running in May, but also to the greatest extent since January 2021. Firms generally associated the upturn with advertising, demand strength and a favourable economic climate.

Exports gave impetus to total new orders in May. Companies registered the quickest expansion in international sales for six months.

Indian manufacturers scaled up production volumes as a result of growing new orders and favourable market conditions. The latest increase in output was sharp and the fastest in 28 months.

Meanwhile, cost pressures remained historically mild, but demand strength facilitated a solid and quicker increase in output charges.

"While improvements in supply chains and generally subdued global demand for inputs helped curb input price inflation in May, heightened demand and previously absorbed cost burdens translated into a stronger upward revision to selling charges. Demand-driven inflation is not inherently negative, but could erode purchasing power, create challenges for the economy and open the door for more interest rate hikes," says Lima.

On Wednesday, output growth in India's eight core sectors fell from 3.6% in March to 3.5% in April, the slowest pace in six months, with half of the sectors registering contractions, including electricity and natural gas.