India’s May manufacturing reading shows quickest expansion rate in 12 years

• May data indicates a sharp and accelerated increase in quantities of purchases, with the rate of expansion quickening to the strongest in over 12 years.
• Factory orders increased for the twenty-third month running in May.
• Give a boost to total new orders in May. Companies registered the quickest expansion in international sales for six months.

The Indian economy is showing resilience despite global headwinds. After the positive surprise in economic growth, manufacturing PMI for the month of May has also expanded to 58.7 from 57.2 in April. The seasonally adjusted S&P Global India Manufacturing Purchasing Managers’ Index rose from 57.2 in April to 58.7 in May, indicating the strongest improvement in the health of the sector since October 2020.

Out of the five PMI sub-components, stocks of purchases showed notable vigour, increasing at an unprecedented pace in May. Companies that are tracked indicated that better supply-chain conditions and sustained increases in input purchasing boosted inventory growth.

May data indicates 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. This suggests that demand conditions remain robust across manufacturing industries and also that supply chain conditions are improving.

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.

Commenting on the data, Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence, "The PMI's spotlight on soaring sales showcases robust demand for Indian-made products both domestically and internationally. 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. Combined, they also generated more employment opportunities in May.

She added that the record increase in input stocks showed a better preparedness of manufacturers in managing supply chains. This would allow firms to mitigate potential disruptions, maintain a steady flow of production and demonstrate the industry's resilience in the face of challenges.

While improvements in supply chains and generally subdued global demand for inputs helped curb input price inflation in May, De Lima said, 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.