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India’s manufacturing PMI hit a 31-month high in May

Introduction

The manufacturing sector in India experienced a significant expansion in May, according to the seasonally adjusted S&P Global India Manufacturing Purchasing Managers’ Index (PMI). The PMI rose from 57.2 in April to 58.7, indicating the strongest improvement in the sector’s health since October 2020.

India’s manufacturing PMI hit a 31-month high in May

What is S&P Global India Manufacturing Purchasing Managers’ Index (PMI)?

The S&P Global India Manufacturing Purchasing Managers’ Index (PMI) is a measure of the performance of the manufacturing sector in India. It is derived from a survey of 500 manufacturing companies and consists of five individual indexes:

  • New Orders (30%)
  • Output (25%)
  • Employment (20%)
  • Suppliers’ Delivery Times (15%)
  • Stock of Items Purchased (10%)

A reading above 50 indicates expansion, below 50 indicates contraction, and 50 represents no change in the sector. The PMI provides a concise snapshot of the manufacturing sector’s health and is a valuable indicator for monitoring economic conditions in India.

Reasons

The increase in manufacturing expansion in May was caused by:

  • Remarkable strength in demand conditions, with factory orders increasing for the twenty-third consecutive month.
  • Increased demand for Indian products both domestically and internationally, leading to the strongest expansion in international sales in six months.
  • Favorable market conditions and growing new orders, prompting Indian manufacturers to scale up production volumes.
  • Improved supply chain conditions, resulting in a record accumulation of input inventories.
  • Capacity pressures on goods producers, which supported job creation and led to a six-month high in employment growth.
  • Stocks of purchases showed significant growth, increasing at an unprecedented pace.

Some important trends:

  • The seasonally adjusted S&P Global India Manufacturing Purchasing Managers’ Index (PMI) rose from 57.2 in April 2023 to 58.7 in May 2023, the highest level since October 2020.
  • Out of the five PMI sub-components, stocks of purchases showed notable vigor, increasing at an unprecedented pace in May 2023.
  • Factory orders increased for the twenty-third consecutive month in May, reaching the highest level since January 2021.
  • Exports played a crucial role in driving new orders, with the fastest expansion in international sales in six months.
  • The rate of expansion in quantities of purchases in May was the strongest in over 12 years.
  • The manufacturing sector registered year-on-year growth of 4.5% in Q4 FY2023 after contracting in the previous two quarters.
  • The robust performance of the manufacturing sector contributed to job creation and the accumulation of input inventories as supply chain conditions improved.
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