India's private sector activity continued to signal expansion in May, with the HSBC Flash India Composite PMI easing slightly to 58.1 from 58.2 in April, indicating sustained growth momentum, according to S&P Global data. The slight decline from April's reading of 58.2 reflects a continued expansion in private sector activity, though at a slightly more moderate pace. However, the latest data reveals that manufacturing slowdown driven by the Middle East war and cooling international demand has offset a marginal pick-up in the service economy, as reported by multiple sources. The index has remained above 50 — the mark that separates growth from contraction — for 57 straight months, demonstrating the resilience of India's private sector despite current challenges.
Underlying data showed a pickup in services activity, which provided support to the overall composite PMI reading despite manufacturing sector challenges. This services sector strength helped offset the weaker performance in factory production, demonstrating the resilience of India's services-driven economy during the current period. The services sector showed stronger job creation compared to manufacturing, while firms in the services industry absorbed some of the rising input costs, helping to cushion the overall economic impact. The services sector's continued strength has been crucial in maintaining overall private sector expansion despite manufacturing headwinds.
Factory production showed signs of weakness, with the weaker rise in factory production representing the second-slowest since mid-2022. Manufacturing activity eased marginally as the rates of expansion in output and new orders moderated, while growth of new export orders softened markedly. According to Pranjul Bhandari, Chief India Economist at HSBC, "Manufacturing activity eased marginally as the rates of expansion in output and new orders moderated, while growth of new export orders softened markedly." The manufacturing slowdown was primarily driven by the Middle East war and cooling international demand, creating headwinds for the sector's growth trajectory. However, the Manufacturing PMI remained broadly in line with its long-run average, supported by continued inventory building.
Finished goods stocks rose for a second consecutive month and stocks of purchases increased at the fastest rate in three months, indicating continued inventory building across the manufacturing sector. Cost pressures intensified significantly, with input prices rising at the sharpest rate since July 2022, adding to inflationary concerns in the manufacturing sector. Despite these cost pressures, firms across both manufacturing and services sectors have been able to absorb some of these rising costs, helping to maintain overall economic resilience. The latest data shows that growth in new orders, international sales, employment and business activity dipped marginally, reflecting the broader impact of global uncertainties on manufacturing operations.
According to Pranjul Bhandari, Chief India Economist at HSBC, the data reflects a mixed picture with manufacturing challenges offset by services strength. The sustained PMI levels above 50 indicate continued economic expansion, though the moderation in manufacturing growth and intensified cost pressures warrant monitoring for future economic assessments. Business optimism declined in the latest survey, indicating that while economic activity remains positive, firms are becoming more cautious about future prospects amid global uncertainties. The flash PMI survey, which is based on around 90% of total PMI survey responses, provides an early indication of the final Manufacturing, Services, and Composite PMI data for the month, typically released a week before the final PMI indices.
