India's manufacturing growth slowest in 3 months due to intense heat wave in May

Business Standard reported, citing the Purchasing Managers' Index (PMI) released by HSBC on Monday, the headline figure declined to 57.5 in May from 58.8 in April.

“Companies indicated that working hours had been reduced amid an intensive heatwave, which somewhat hampered production volumes. New orders also rose at a softer pace, but international sales increased to the greatest extent in over 13 years,” said the survey.

A figure above 50 in the index indicates expansion, while a figure below signifies contraction.

Despite the slight loss of growth momentum, India's manufacturing sector continued to maintain a strong expansionary trend in the middle of the first fiscal quarter. This expansion was driven by gains in new business, robust demand, and effective marketing efforts.

The survey noted that orders grew at a substantial pace but it was slowest in the last three months. “Marketing efforts, demand strength and favourable economic conditions,” was behind the rise but the growth was subdued by competition and election-related disruptions.

On the export front, new export orders increased at a faster rate in May. This upturn marked the strongest growth in over 13 years, with firms reporting gains from customers across various countries in Africa, Asia, the Americas, Europe, and the Middle East.

Pranjul Bhandari, Chief India Economist at HSBC, noted that the manufacturing sector sustained its expansionary trajectory in May, albeit at a slower pace. This deceleration was primarily driven by a more subdued increase in new orders and output. Panellists cited the heatwave as a contributing factor to lower work hours in May, potentially impacting production volumes.

“In contrast, new export orders rose at the fastest pace in over 13 years, with a broad-based demand across geography. On the price front, higher raw material and freight costs led to a rise in input prices. Manufacturers were only able to pass on a part of this increase to consumers, resulting in a squeeze in manufacturing margins. The positive news is that May recorded the highest level of positive sentiment among manufacturing firms in just under a decade, resulting in increased job creation,” she said.

In May, manufacturing employment rose to one of the greatest extents seen since data collection started in March 2005.

“Jobs growth, parallel to rising material and freight costs, underpinned a quicker increase in input costs at goods producers. The overall rate of inflation remained below its long-run average, but picked up to its joint-highest since August 2022. In response to the latest increase in operating expenses companies raised their own selling prices in May. The rate of charge inflation quickened to an eight-month high.” the survey noted.