India's manufacturing sector growth eases in May

India's manufacturing sector saw a slower growth rate for the second straight month in May but stayed firmly in expansion mode with global sales increasing to the greatest extent in over 13 years, a monthly survey said on Monday.

The seasonally adjusted HSBC India Manufacturing Purchasing Managers' Index (PMI) fell from 58.8 in April to 57.5 in May, signalling a slower but substantial improvement in the health of the sector.

The index had climbed to a 16-year high of 59.1 in March.

In PMI parlance, a print above 50 means expansion while a score below 50 denotes contraction.

According to HSBC Global Economist Maitreyi Das, "The manufacturing sector remained in expansionary territory in May, albeit the pace... slowed, led by a softer rise in new orders and output."

The slowdown was attributed to reduced working hours amid intensive heatwave and rising production costs.

"Panelists cited heatwaves as a reason for lower work hours in May, which may have affected production volumes," Das said.

The headline figure was nearly four points higher than its long-run average.

May data showed a further upturn in Indian factory production, which stretched the current sequence of expansion to nearly three years.

Despite easing to a three-month low, the rate of increase remained sharp.

Growth was supported by new business gains, demand strength and successful marketing efforts, the report said.

New orders rose at a substantial pace that was nonetheless the slowest in three months.

The rise was associated with marketing efforts, demand strength and favourable economic conditions, as per the report.

Growth was reportedly stymied by competitions and election-related disruptions, it said, adding that in contrast to the trend for total sales, new export orders rose at a faster pace in May.

The upturn in international sales was the strongest in over 13 years as manufacturers witnessed gains from customers across several countries in Africa, Asia, the Americas, Europe, and the Middle East.

The ongoing strong sales performances, combined with upbeat growth forecasts, fuelled job creation in May, the report said.

Manufacturing employment rose to one of the greatest extents seen since data collection started in March 2005, the report said, adding that jobs growth, parallel to rising material and freight costs, underpinned a quicker increase in input costs at goods producers.

"On the price front, higher raw material and freight costs led to a rise in input prices.

"Manufacturers were only able to pass on a part of this increase to consumers, resulting in a squeeze in manufacturing margins," Das said.

"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 added.

The HSBC India Manufacturing PMI compiled by S&P Global, is based on responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers.