India Manufacturing PMI May 2026: Final print at 55.0, above flash 54.3; Iran war drives input costs

India’s manufacturing sector expanded at a faster pace than initially estimated in May 2026, with the final HSBC India Manufacturing PMI coming in at 55.0, above the flash estimate of 54.3 and April’s reading of 54.7. The print marks the best improvement in the health of the sector in three months, according to S&P Global’s survey of approximately 400 purchasing managers conducted between May 8 and 22.

Any reading above 50 signals expansion. At 55.0, India’s manufacturing sector remains firmly in growth territory even as the Iran war continues to drive input costs to levels not seen in nearly four years.

Demand holding, domestic market leading

New orders and output both expanded at the fastest pace since February, with intermediate and capital goods categories leading the acceleration while consumer goods makers reported a slowdown. Survey participants attributed the upturn to demand strength, infrastructure projects, and new business wins.

The domestic market was the primary engine of growth. Export order growth moderated compared to prior months, though international sales remained solid, with panellists citing gains from Asia, Europe, Kenya, Nigeria, and the Middle East.

Stockpiling intensifies as manufacturers brace for supply disruption

One of the most telling signals in the May data is the surge in precautionary purchasing. Input buying grew at the quickest pace in three months and above the historical trend, driven by attempts to raise contingency stocks rather than immediate production needs. Pre-production inventory accumulation reached a three-month high as delivery times shortened only marginally.

Stocks of finished goods rose for the second consecutive month, with the pace of accumulation the highest in 11 years, and companies noting that supply was exceeding demand at the finished goods level. Pranjul Bhandari, Chief India Economist at HSBC, described the pattern as “another month of possible precautionary stockpiling as the Middle East conflict remains unresolved.”

Cost pressures at near four-year high

The Iran war’s imprint on input costs is unambiguous. Purchasing prices rose at the second-fastest pace since April 2022, with panel members signalling greater outlays on energy, fuel, materials, and transportation. Over the past 45 months, a stronger increase in input prices was only seen in April 2026. Capital goods faced the steepest input cost inflation, followed by intermediate and then consumer goods.

Factory gate charges, however, rose at a rate below input cost inflation and below the average seen over the past year. Only 8% of companies passed cost increases through to customers, with the rest holding back due to competitive pressures. Bhandari flagged that output price inflation slowing more sharply than input cost inflation suggests “a potential squeeze on manufacturers’ margins.”

Employment and business confidence

Job creation continued for another month, with the rate of expansion solid despite slowing from April. Outstanding business volumes rose for the second straight month at a marginal pace. Business confidence remained positive, with companies expressing hope that cost pressures will fade later in the year, supported by strong order pipelines and advertising activity.

India context

The May Manufacturing PMI of 55.0 arrives alongside India’s FY26 GDP print of 7.6% and an FY27 growth projection of 6.9%, with the RBI flagging that a prolonged West Asia conflict poses downside risks. The PMI data confirms that manufacturing demand is holding up despite the energy shock, but the margin squeeze from unabsorbed input costs is a risk that will bear watching as the Iran war’s resolution timeline remains uncertain.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Please consult a qualified financial advisor before making any investment decisions.