Domestic and foreign demand slowed down the manufacturing expansion in June as the industry continued to grow but lost momentum. The manufacturing purchasing managers' index (PMI) at HSBC India came down to 54.2 in June from 55.0 in May, pointing to a contraction in the manufacturing sector, which remained in positive territory but saw one of its poorest readings since mid-2022.

Key Highlights

• India's manufacturing PMI eased to 54.2 in June as output, exports, employment and new orders slowed.
• Softer inflation pressures and weaker export demand signalled moderating factory growth despite continued manufacturing sector expansion.

The survey revealed that factory activity and orders growth, export demand and employment growth decreased during the month. While some manufacturers reported good business activity, others indicated that customer demand was weak and competition was stiff in the market, especially in capital goods. Relatively stronger growth was seen in consumer and intermediate goods manufacturing, however.

Export Demand Weakens While Inflationary Pressures Ease

The demand for India's manufactured products remained high on the international market but at the lowest level since March 2023, with orders from some European markets declining. The manufacturers' efforts to push up output prices slowed, as demand slowed, leading to less inflation in output prices.

Pranjul Bhandari, Chief India Economist at HSBC, said, "The June PMI was a sign of continuing expansion but at a lower rate. The slowdown in growth was seen across output, new orders, exports and hiring, and both input and output price indexes fell, reflecting weakened inflationary pressures as geopolitical turmoil slowly fades."

Manufacturers also saw decreased input cost pressures in June. Firms had to deal with higher prices for chemicals, metals, petroleum products, plastics, rubber, electronic components, gas and wood, but purchasing price inflation slowed to its lowest level since February.

Also Read: India's Manufacturing PMI at 54.7 in April, Slowest Growth in 4 Yrs

Demand slowed and buying activity grew at its slowest rate in over 22 months, resulting in a decrease in inventory build. Inventories of finished goods fell the most in six months, a sign that companies matched market demand.

Limited capacity pressures and stable order backlogs were also evident in employment growth during the month. Business confidence fell to a five-month low, with manufacturers saying demand and competitive market conditions were hurting. Firms reporting an increase in production in the next 12 months also decreased from May.

The June PMI, though in a moderate state, was still comfortably higher than 50, which signifies that the manufacturing sector in India is still growing. However, the new numbers show that companies are starting to be more cautious, as the world's demand declines and pressures are rising.