India's May factory growth sees slowdown due to heatwave; HSBC Index hits 3-month low

India’s manufacturing sector activity slowed down in May from the previous month as reduced working hours on the back of heatwave conditions in the country hit production, S&P Global said on June 3.  

The HSBC India Manufacturing Purchasing Managers’ Index, compiled by S&P Global, fell to a three-month low of 57.5 in May from 58.8 in April. The index stood at 58.4 for May. A reading above 50 denotes an expansion in activity, while a print below 50 indicates a contraction.  

“Companies indicated that working hours had been reduced amid an intensive heatwave, which somewhat hampered production volumes. New orders also rose at a softer pace, but international sales increased to the greatest extent in over 13 years,” S&P Global said in a release. 

Despite softening, the index remained above its long-run average and has been above the 50-mark separating contraction from expansion for almost three years. 

Maitreyi Das, Global Economist at HSBC, said, “The manufacturing sector remained in expansionary territory in May, albeit the pace of expansion slowed, led by a softer rise in new orders and output. Panellists cited heatwaves as a reason for lower work hours in May, which may have affected production volumes. In contrast, new export orders rose at the fastest pace in over 13 years, with a broad-based demand across geography.”  

“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. 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,” she added.  

Steller GDP show

India’s gross domestic product (GDP) for the January-March quarter of fiscal 2023-24 (Q4FY24) came in at 7.8 percent, driven by strong growth in the manufacturing sector. The economy beat estimates and grew by 8.2 percent for the full year (FY24).  

According to data released by the National Statistical Office (NSO) on May 31, the sector-wise analysis revealed that the real gross value added (GVA) grew at a rate of 7.2 percent in 2023-24, compared to the 6.7 percent growth observed in 2022-23. The growth propelled the Indian economy to $3.5 trillion and set the stage for achieving the $5 trillion target in the next few years. 

“This GVA growth has been mainly due to significant growth of 9.9 percent in the manufacturing sector in 2023-24 over a contraction of 2.2 percent in 2022-23 and growth of 7.1 percent in 2023-24 over 1.9 percent in 2022-23 for the mining sector,” the government said in a press release. 

The primary sector, constituting agriculture and mining, grew at 2.1 percent on an annual basis. The agriculture and mining sectors recorded a growth of 1.4 percent and 7.4 percent, as against 4.7 percent and 1.9 percent, respectively. 

The secondary sector, including manufacturing, electricity and construction components, grew at 9.7 percent on a year-on-year basis. The manufacturing sector witnessed a growth of 9.9 percent while electricity grew by 7.5 percent. The construction sector also grew by 9.9 percent in FY24.