India manufacturing PMI slips in June; output, new orders post weakest growth in 4 years

India's manufacturing sector activity growth eased in June as growth in new orders, output and exports moderated, a monthly survey said on Wednesday.

The seasonally adjusted HSBC India Manufacturing Purchasing Managers' Index (PMI) fell to 54.2 in June from 55.0 in May, indicating the second-weakest improvement in operating conditions since mid-2022.

However, the reading remained well above the 50-mark that separates expansion from contraction and was in line with the survey's long-run average.

The survey showed that, barring March, growth in output and new orders was the weakest in four years.

While some firms reported stronger demand, others cited subdued customer appetite and intense market competition.

"The moderation suggests demand has cooled slightly after the earlier surge linked to the Middle East conflict. Growth slowed across output, new orders, export orders and employment, with international sales recording their weakest increase since March 2023," said Pranjul Bhandari, Chief India Economist at HSBC.

The slowdown was driven by capital goods manufacturers, while consumer and intermediate goods producers recorded faster growth.

International demand for Indian manufactured goods continued to improve in June, but export order growth slowed to its weakest pace since March 2023.

With demand growth easing, manufacturers became less aggressive in raising prices.

"... Both the input and output price indices declined, pointing to softer inflation pressures as geopolitical disruptions begin receding," Bhandari said.

Output charge inflation moderated to a three-month low, while input cost inflation slowed to its weakest level since February.

Companies continued to report higher prices for chemicals, electronic items, gas, metals, petroleum products, plastics, rubber and wood.

Growth in purchasing activity eased to its weakest level in two-and-a-half years, leading to a softer build-up in input inventories, particularly among capital goods producers.

Finished goods inventories, meanwhile, declined at the fastest pace in six months, ending a two-month period of accumulation as firms aligned production and stock levels more closely with prevailing demand.

On the job front, the survey pointed to weaker hiring momentum.

Employment increased at the slowest pace so far this year as backlogs of work remained largely unchanged. Meanwhile, investor and business confidence dampened in June on concerns over demand and market conditions.

The proportion of firms forecasting output growth in the year ahead halved since May, with a large share of manufacturers signalling neutral expectations, the survey said, adding that the overall degree of optimism retreated to a five-month low.

The HSBC India Manufacturing PMI is compiled by S&P Global from responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers.