India’s manufacturing sector expanded at a faster pace in May, with the HSBC Manufacturing Purchasing Managers’ Index (PMI) rising to 55.0 from 54.7 in April. The growth was supported by strong domestic demand, infrastructure activity and fresh business gains.
According to the HSBC India Manufacturing PMI survey, the latest reading signalled the strongest improvement in the sector’s health in three months. The PMI had stood at 54.7 in April and 53.9 in March amid Middle East conflict that started in late February.
The HSBC Manufacturing PMI is a gauge of overall manufacturing sector conditions, derived from measures of new orders, output, employment, supplier delivery times and stocks of purchases. A PMI reading above 50 indicates an expansion in activity, while a reading below 50 signals a contraction.
Factories step up stockpiling amid Middle East tensions: HSBC Chief Economist
Pranjul Bhandari, Chief India Economist at HSBC, said, “India’s final manufacturing PMI points to another month of possible precautionary stockpiling as the Middle East conflict remains unresolved. Output growth accelerated, while purchasing activity and stocks of finished goods rose at a faster pace.”
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“New order growth was driven by domestic demand, as export order growth moderated. Input cost inflation eased slightly on the month, and output price inflation slowed more sharply, suggesting a potential squeeze on manufacturers’ margins,” she added.
New orders and output rise at fastest pace since February
Manufacturers reported stronger growth in both new orders and production during the month. The survey showed that new orders and output expanded at the fastest pace since February, driven largely by the intermediate and capital goods segments.
Companies attributed the growth to resilient demand, infrastructure projects and new business wins.
The survey also highlighted that domestic demand remained the key growth driver. Although export orders continued to increase, the pace of growth slowed compared to previous months.
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Manufacturers reported higher demand from markets across Asia, Europe, Kenya, Nigeria and the Middle East.
Raw material and fuel costs remain a concern
Input cost inflation stayed elevated in May as geopolitical tensions in the Middle East continued to push up prices of energy, fuel, transportation and raw materials.
The survey noted that input costs rose at one of the fastest rates seen in the past four years, with only April 2026 witnessing a stronger increase.
However, manufacturers were unable to fully pass on rising costs to customers. Output price inflation slowed and remained lower than input cost inflation, indicating pressure on profit margins.
Finished goods inventories hit 11-year high
Despite higher costs, manufacturers increased purchases of raw materials during the month.
Buying activity grew at the fastest pace in three months as companies built contingency inventories amid ongoing geopolitical uncertainties.
The survey also showed a rise in pre-production inventories and finished goods stocks. Stocks of finished goods increased at the fastest pace in 11 years as supply outpaced demand.
Hiring continues, confidence stays positive
Manufacturers continued to add jobs in May to support higher production requirements, although the pace of hiring eased slightly from April.
Business confidence remained positive, supported by expectations that cost pressures could ease later in the year. Advertising efforts and strong order pipelines also boosted optimism regarding future growth prospects.
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