India Manufacturing PMI Slips to Three-Month Low as Export Demand Loses Momentum

India’s manufacturing activity slowed to a three-month low in June, reflecting softer international demand and a moderation in production, hiring, and purchasing activity. According to the HSBC India Manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, the index declined to 54.2 in June from 55.0 in May.

The latest reading was also below the flash estimate of 54.5 released earlier. However, the index remained comfortably above the 50-mark that separates expansion from contraction, extending the manufacturing sector’s expansion streak to 56 consecutive months.

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Output and New Orders Lose Pace

According to the S&P Global survey, growth in both output and new orders slowed during June, with rates of expansion among the weakest seen in the past four years, except for March.

Manufacturers reported mixed demand conditions. While some companies recorded healthy order inflows, others pointed to subdued customer demand and intense market competition, resulting in slower business growth.

International sales also weakened during the month. Export orders expanded at the slowest pace in 39 months, with softer demand from European markets weighing on overseas shipments.

Employment and Purchasing Activity Moderate

The survey showed that firms continued to recruit workers and increase purchasing activity, although both expanded at a slower pace than in previous months.

Positive business expectations about production were sustained owing to the launches of new products and marketing strategies. However, the rate of expansion for key indexes was somewhat weaker compared to recent months.

Inflation of Input Costs Falls Further

The inflation rate of input costs fell further during June, with input costs rising at their weakest rate since February.

Despite the moderation, companies continued to report higher costs for chemicals, petroleum products, metals, plastics, rubber, electronic components, gas, and wood. Many firms passed part of these higher expenses on to customers through selling price increases, although pricing pressures remained relatively contained.

Survey Highlights Cooling Demand

Commenting on the survey, Pranjul Bhandari, Chief India Economist at HSBC, said growth softened across output, new orders, export demand, and employment during June.

She noted that international sales recorded their weakest increase since March 2023, indicating that external demand has moderated following the earlier surge linked to geopolitical disruptions in West Asia.

Even as the manufacturing sector slowed slightly during the period, the sector has managed to grow on the back of continued strong domestic demand and growing business sentiment. The current reading of the PMI clearly shows that the manufacturing sector is still in growth mode, despite lower export orders and global demand growth rates.