India's manufacturing sector experienced its lowest growth in five years in July, with the Indian Manufacturing PMI dropping to 53.5, indicating that the market was tougher and new business orders were also slowing down.
Key Highlights
- The Indian Manufacturing PMI fell to a five-year low of 53.5 in July from 54.2 in June.
- New export orders experienced a significant accelerated increase, but job creation was weaker for the third consecutive month.
The seasonally adjusted index dropped from 54.2 in June to 53.5 in July - its lowest reading since August 2021 and below the long-run series average of 54.2. In PMI parlance, a reading above 50 is reading that the sector is expanding, while a reading below 50 is a reading that means the sector is contracting – and it continued to widen in July, though in its slowest fashion in five years.
New Orders and Job Creation Slows Sharply
During July, the rate of growth in new orders was the second-weakest in over four years. Survey panel members reported that advertising activity and demand for their products were good, with more difficult market conditions and less client interest reducing this boost to sales.
Job creation in the manufacturing sector across India cooled for the third month in a row in July, with the level of jobs growth showing the lowest rate of increase in the 29 month period of successive employment increases.
Supply Chains Improve but with Risks
Despite the broader slowdown, companies reported a notable improvement in supply-chain conditions during July, with input lead times shortening at a near survey-record pace.
Pranjul Bhandari, Chief India Economist at HSBC India, said the rise in the suppliers' delivery times index was an encouraging sign that supply-chain delays are continuing to unwind. However, she cautioned that renewed tensions in the Middle East have raised fresh doubts about how durable these improvements will prove to be.
Bhandari added that manufacturers appear to be rebuilding buffers, with inventories of both inputs and finished goods rising alongside increased purchasing volumes — suggesting firms are working to secure supply and limit exposure to potential future disruptions. She also noted that output and new export orders strengthened during the month, pointing to resilient demand, particularly from overseas markets.
Also Read: India's Manufacturing PMI Slows to 54.2 in June as Demand Moderates
Export Orders Accelerate, Price Pressures Shift
One of the standout findings from the survey was a marked and accelerated upturn in new export orders. Firms reported gains from a range of international markets, including Canada, Egypt, Indonesia, Kenya, Nepal, South Africa, Thailand and the UAE.
On pricing, Pranjul Bhandari noted a shift in cost dynamics: input cost inflation moderated during the month, while output charge inflation accelerated, indicating that firms are once again passing on price increases to protect their margins. Overall cost pressures eased to their weakest level in five months, though companies continued to report higher transportation costs in particular. Selling prices rose moderately, broadly in line with the increase seen in June.
Business Sentiment Improves from June's Low
Business sentiment moved upwards from its recent low despite the lack of headline growth, as firms indicated they expected a more positive outlook for demand, infrastructure projects and new client enquiries. Some companies indicated that the outlook for the market is better, and that they hope that continued marketing efforts will contribute to continued growth.
The HSBC India Manufacturing PMI is based on firms' responses to a questionnaire sent to purchasing managers of a representative cross-section of about 400 manufacturing companies in India, every month.
