India’s manufacturing sector showed the slowest improvement in business conditions since February, as reflected in the seasonally adjusted HSBC India Manufacturing Purchasing Managers’ Index (PMI), which declined from 58.2 in April to 57.6 in May.

Despite the drop, the PMI remained significantly above the neutral 50.0 mark and the long-term average of 54.1.

According to the report, while May data still pointed to strong overall growth in the manufacturing industry, the expansion in both new orders and production eased to their lowest levels in three months. However, these indicators stayed well above their historical averages, Financial Express reports.

“India’s May manufacturing PMI signalled another month of robust growth in the sector, although the rate of expansion in output and new orders eased from the previous month,” said Chief India Economist at HSBC, Pranjul Bhandari.

Panellists noted that strong demand continued to drive sales and production; however, growth was reportedly hindered by factors such as heightened competition, inflation, and tensions between India and Pakistan.

Although the steady rise in new orders continued to bolster output, the pace of growth slowed to its lowest in three months.

Companies surveyed by S&P Global attributed the expansion to solid domestic and overseas demand, as well as effective marketing efforts. Still, they acknowledged that cost pressures, intense market competition, and geopolitical tensions with Pakistan dampened the overall upturn.

In addition, new export orders increased at one of the fastest rates seen in the past three years, driven by strong demand from regions including Asia, Europe, the Middle East, and the United States.

Meanwhile, manufacturers ramped up both input purchases and staffing, with employment seeing a record-high increase for the survey. At the same time, input costs climbed to their highest level in six months, prompting the sharpest rise in selling prices in nearly 11 and a half years.

“The acceleration in employment growth to a new peak is certainly a positive development. Input cost inflation is picking up, but manufacturers seem to be able to lessen the pressure on profit margins by raising output prices,” Bhandari added. 

Buoyed by strong sales, companies expanded their input purchases to support production, with the growth rate remaining sharp and only slightly lower than in April. Firms also increased hiring in May, pushing the rate of job creation to a new series high.

Furthermore, among the 12% of panellists who reported increased staffing levels, permanent positions were more commonly added than temporary roles.