Although the health of the Indian manufacturing sector continued to improve in May, the latest results show a significant loss of growth momentum, according to the latest IHS Markit Manufacturing PMI released on Tuesday. Due to the intensification of the Covid-19 crisis and its detrimental impact on demand, companies observed the slowest rise in new work and output for 10 months. There was also a substantial slowdown in the growth of input purchasing and another round of job shedding.

Concerns surrounding the pandemic restricted business confidence towards the year-ahead outlook for production. At 50.8 in May, down from 55.5 in April, the seasonally adjusted IHS Markit India Manufacturing Purchasing Managers' Index (PMI) moved closer to the no-change mark of 50.

The latest figure pointed to a marginal improvement in business conditions that was the weakest in current 10-month sequence of expansion. New orders, the largest sub-component of headline figure, increased at a marginal pace that was the slowest since the current stretch of expansion started in August 2020.

According to panel members, demand was suppressed by the Covid-19 crisis. Firms scaled up production volumes during May but the pace of expansion was modest in the context of historical data. Although new export orders also increased at a softer rate, the upturn was solid and outpaced the long-run series trend.

Covid-19 restrictions and a lack of new work led companies to reduce their payroll numbers further. The decline in employment was slight but accelerated from April. Amid reports of ongoing efforts to protect margins from cost increases, firms lifted their selling prices again in May. The rate of charge inflation was solid but softened from April.

"However, detrimental impacts of the pandemic and associated restrictions seen in manufacturing sector are considerably less severe than during the first lockdown when unprecedented contractions had been recorded," said Pollyanna De Lima, Economics Associate Director at IHS Markit. "But the overall degree of optimism towards the year-ahead outlook for output was at a 10-month low, a factor which can hamper business investment and cause further job losses."

The IHS Markit India Manufacturing PMI is compiled from responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers. The panel is stratified by detailed sector and company workforce size based on contributions to GDP. IHS Markit is a world leader in critical information, analytics and solutions for the major industries and markets that drive economies worldwide. The company delivers next-generation information, analytics and solutions to customers in business, finance and government.