India's July manufacturing PMI falls to near five-year low, exports offer support

India's manufacturing sector growth eased to its weakest pace in nearly five years in July, as softer growth in domestic orders offset a sharp rebound in export demand, a monthly survey showed on Monday.

The seasonally adjusted HSBC India Manufacturing Purchasing Managers' Index (PMI) slipped to 53.5 in July from 54.2 in June, marking the lowest reading since August 2021.

However, the index remained above the 50-mark separating expansion from contraction.

The latest reading was also below the survey's long-run average of 54.2.

According to the survey, growth in new orders remained positive but was the second-weakest in more than four years.

Export orders, on the other hand, gathered momentum, with firms reporting stronger demand from markets including Canada, Egypt, Indonesia, Kenya, Nepal, South Africa, Thailand and the UAE.

Consumer goods manufacturers recorded noticeably weaker increases in output and new orders, while intermediate and capital goods producers outperformed.

The moderation in demand also led to a slowdown in input purchasing, which grew at the weakest pace in 31 months.

On the price front, input cost inflation eased to a five-month low despite higher transportation costs.

Manufacturers, however, continued to raise selling prices at a moderate pace.

Business confidence improved from June's recent low, with manufacturers citing optimism over demand, infrastructure projects, new client enquiries and the expected impact of marketing initiatives.

"The suppliers' delivery times index rose in July, an encouraging sign that supply chain delays are continuing to unwind. However, renewed tensions in the Middle East have raised fresh doubts about how durable these improvements will be," said Pranjul Bhandari, Chief India Economist at HSBC.

She said manufacturers appeared to be rebuilding inventory buffers to guard against potential disruptions, while stronger output and export orders pointed to resilient demand, particularly from overseas markets.

Bhandari added that although input cost inflation had moderated, firms were increasingly passing on higher costs to customers to protect profit margins.