India’s PMI Slides, Yet Factories Keep the Hiring Conveyor Belt Rolling

India's manufacturing industry lost a bit of momentum in May, with the HSBC India Manufacturing Purchasing Managers' Index (PMI) sliding to 57.6—the lowest since February. Although this is a three-month low, the industry is still comfortably in growth mode well above the neutral 50 mark dividing expansion and contraction.

Key Highlights

The PMI slipped from 58.2 in April to 57.6 in May, signaling a slowdown in both output and new orders.

In spite of the downturn, domestic and international demand continued to be strong, owing to successful marketing and satisfactory export orders, particularly to Asian, European, West Asian, and American markets.

The industry's growth was setback by increasing cost of inputs, inflationary pressures, and increased competition. Geopolitical tensions, especially the India-Pakistan conflict, also affected business attitude and prospects for growth.

Highlight on Employment

One highlight was the historic record increase in recruitment. In May, employment grew at a pace faster than in the history of the survey, with manufacturers hiring more permanent staff than temporary workers.

The recruitment frenzy allowed companies to keep workloads under control and brought to an end six months of increasing backlogs.

Market Insights

Input cost inflation gained pace, with producers having to pay more for raw materials, freight, and labor. Many countered this by increasing output prices in order to maintain profit margins.

In spite of the weaker growth pace, the sector's resilience was supported by firm consumer demand and an optimistic view of the next year.

Sources: Reuters, The Economic Times, Business Standard, Outlook Business, HDFC Sky