India's manufacturing growth slowed to a three-month low in May as a heatwave prompted some companies to reduce working hours, but factory activity remained robust overall, bolstered by strong international sales, a business survey showed on Monday.
Asia's third-largest economy often sees high temperatures during May and they soared above 50 degrees Celsius (122°F) in some northern and western regions last month.
The HSBC final India Manufacturing Purchasing Managers' Index, compiled by S&P Global, dipped to 57.5 in May from April's 58.8, below a preliminary estimate of 58.4.
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.
"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," said Maitreyi Das, global economist at HSBC.
"In contrast, new export orders rose at the fastest pace in over 13 years, with a broad-based demand across geography."
Government data on Friday showed India's economy expanded by 7.8% year-on-year in the January-March quarter, helped by strong growth in manufacturing and economists expect the momentum to remain strong this year.
The growth rate was above the Reuters poll expectation of 6.7%.
A national election started on April 19 and voting will conclude on June 1, with results due on June 4.
The output and new order PMI sub-indexes eased to three-month lows. However, they were historically strong on upbeat demand and favourable economic conditions. Growth was also curbed by election-related disruptions.
However, international sales rose at the strongest rate in over 13 years, extending the current sequence of rising export orders to 26 months.
Firms showed the highest level of positive sentiment in more than nine years on expectations that demand will remain buoyant. The optimism prompted companies to add jobs at the fastest pace since November 2022.
However, strong demand also led to a steeper increase in both input and output price sub-indexes.
Corporate cost burdens accelerated in May and the rate of inflation was its joint-highest in 21 months, while prices charged to customers rose at the fastest pace in eight months.
"Manufacturers were only able to pass on a part of this increase to consumers, resulting in a squeeze in manufacturing margins," added Das.
Higher prices for electronic components, packaging, plastics and steel added to costs.
Inflation in India has remained within the Reserve Bank of India's (RBI) target range of 2%-6% since September 2023 and was predicted to remain below 5.0% until the end of the fiscal year 2025-26, according to a Reuters poll.
The RBI is expected to keep its repo rate on hold on June 7, but then lower interest rates in the October-December quarter, the Reuters survey showed.
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