New Delhi
India's manufacturing sector recorded its strongest growth in three months during May, supported by robust domestic demand, infrastructure-related activities, and an increase in new business orders, according to the latest HSBC India Manufacturing Purchasing Managers' Index (PMI) survey.
The seasonally adjusted PMI rose to 55.0 in May from 54.7 in April, signalling an improvement in overall manufacturing conditions. A PMI reading above 50 indicates expansion in business activity, while a figure below 50 points to contraction.
Manufacturers reported stronger growth in both production and new orders, with the pace of expansion reaching its highest level since February. Companies attributed the improvement to healthy market demand, ongoing infrastructure projects, and fresh business opportunities.
According to HSBC Chief India Economist Pranjul Bhandari, the data suggests that manufacturers may be increasing inventories as a precautionary measure amid continuing uncertainty arising from tensions in the Middle East. Production growth accelerated during the month, while purchasing activity and stocks of finished goods also expanded at a faster pace.
The survey indicated that domestic demand remained the primary driver of growth, whereas export orders increased at a comparatively slower rate.
On the cost front, manufacturers continued to face pressure from elevated prices of fuel, energy, raw materials, and transportation, largely influenced by the ongoing conflict in the Middle East. Although input cost inflation moderated slightly compared to April, selling price inflation slowed more noticeably, raising concerns about pressure on profit margins.
Despite higher costs, firms stepped up purchases of raw materials, recording the fastest increase in buying activity in three months. Many companies cited efforts to build contingency inventories as a key reason for the rise.
Employment in the manufacturing sector also expanded further in May as companies hired additional workers to meet growing production requirements. While job creation remained solid, the pace was marginally slower than the previous month.
Business sentiment stayed positive overall, with manufacturers expressing confidence that cost pressures would ease later in the year. Strong order books and continued marketing efforts also contributed to optimism regarding future growth prospects.
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The HSBC India Manufacturing PMI, compiled by S&P Global, is based on responses from around 400 manufacturing companies across India and serves as a key indicator of the sector's performance.
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