Rising heat cools mfg PMI to 3-mth low as input costs bite

Manufacturing activity eased to a three-month low of 57.5 in May from 58.8 in the previous month as heatwaves and rising production costs took a toll on the sector, showed a private survey released on Monday.

"The pace of expansion slowed, led by a softer rise in new orders and output. Panellists cited heatwaves as a reason for lower work hours in May, which may have affected production volumes," said Maitreyi Das, global economist, HSBC.

However, the softening had little impact on momentum as business confidence rose to its highest level in nine-and-a-half years, fuelled by expectations of favourable demand conditions.

"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," Das noted.

The Indian economy expanded 8.2% in FY24, showed data released last week, surpassing the government's 7.6% estimate in February.

Experts say the momentum is likely to carry this fiscal as well, with growth averaging closer to 7%.

The seasonally adjusted HSBC India Manufacturing Purchasing Managers' Index remained four points higher than the long-run average, spurred by robust exports.

"Growth was supported by new business gains, demand strength and successful marketing efforts, anecdotal evidence showed," the report highlighted.

New export orders--touching the highest level in 13 years--also contributed to better job numbers.

"Manufacturing employment rose to one of the greatest extents seen since data collection started in March 2005," the report stated.

Job growth put pressure on prices as well, with rising material and freight costs as the rate of input inflation rose to the joint-highest since August 2022.

India Inc. still showed some pricing power, with charge inflation quickening to an eight-month high in May as demand kept humming. But higher prices could add more pressure to margins, say experts.

"Input price PMI is now above output price PMI (after remaining below it since September 2023), suggesting possible margin pressures for firms, if commodity prices (crude oil, metals) and freight costs rise further," said Shreya Sodhani, regional economist, Barclays.