Manufacturing PMI Hits Near Five-Year Low in July as Domestic Demand Loses Steam

India’s manufacturing sector expanded at a slower pace in July, with the HSBC India Manufacturing Purchasing Managers’ Index (PMI) falling to 53.5 from 54.2 in June. The latest reading, released by HSBC, marked the weakest level since August 2021, reflecting moderation in factory activity even though the index remained above the 50-point threshold that separates expansion from contraction.

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The slowdown in manufacturing growth came as weaker domestic demand reduced the pace of fresh order inflows. The PMI reading also slipped below the survey’s long-term average of 54.2, indicating that business conditions continued to improve but at a slower rate than usual.

Domestic Orders Weaken, Hiring Slows

The report showed that growth in new business softened considerably during July, with companies pointing to subdued customer demand and challenging market conditions across key product categories. While promotional activities and steady underlying demand continued to support sales, new order growth was the second weakest recorded in more than four years.

Manufacturers responded by moderating purchases of raw materials and slowing recruitment. Buying accelerated at the slowest pace in 31 months, while job gains slowed for the third consecutive month to the softest level since July 2021 in the current hiring cycle of 29 months.

Production accelerated during the month, but production growth was one of the slowest since the middle of 2022.

Export Demand Provides a Positive Influence

In spite of weaker domestic influences, export demand provided a positive influence on manufacturers. The survey reported stronger export orders from markets including Canada, Egypt, Indonesia, Kenya, Nepal, South Africa, Thailand and the UAE, helping companies offset part of the weakness in the domestic market.

Manufacturers also benefited from improving supply chain conditions. Supplier delivery times shortened at one of the fastest rates seen in the survey’s history, allowing companies to rebuild inventories of raw materials and finished goods as a precaution against possible disruptions arising from geopolitical developments.

Input Costs Ease as Business Confidence Improves

Input cost inflation eased to a five-month low despite higher transportation expenses. Companies continued to pass on part of the increase through moderate selling price revisions, helping protect operating margins.

Commenting on the findings, HSBC Chief India Economist Pranjul Bhandari said the improvement in supplier delivery times indicated that supply chain bottlenecks were continuing to ease. Speaking in the HSBC survey release, she noted that renewed tensions in the Middle East had created uncertainty over the sustainability of those gains. Bhandari added that manufacturers appeared to be rebuilding inventories while stronger export orders highlighted continued resilience in overseas demand.

Although manufacturing growth moderated in July, the survey indicated that companies remained optimistic about future business conditions, supported by expectations of stronger demand, infrastructure spending and new client enquiries in the months ahead.