India's manufacturing sector expanded for another month in June, but the pace of growth decelerated to its second-weakest level since mid-2022, according to the HSBC India Manufacturing Purchasing Managers' Index (PMI) survey compiled by S&P Global. The seasonally adjusted PMI dropped from 55.0 in May to 54.2 in June, remaining above the 50-mark that separates expansion from contraction. However, the reading pointed to the second-weakest improvement in the health of the manufacturing sector since mid-2022, ahead of only March.
Output and New Orders Hit Four-Year Lows
The survey revealed that rates of increase in both output and new orders were the weakest seen in four years, excluding March. Despite this, growth remained strong and broadly in line with the long-run series average. Manufacturers reported mixed demand conditions during the month. While several firms cited an improvement in demand, others pointed to subdued client appetite and intense competition in the market.
Capital Goods Segment Drags Growth
The slowdown was driven primarily by the capital goods segment, where growth weakened considerably. In contrast, consumer goods and intermediate goods producers recorded faster growth compared with the previous month. This divergence highlights varying demand dynamics across different manufacturing sub-sectors.
Export Growth Modest Amid European Weakness
International demand for Indian goods continued to improve in June, although the pace of export growth was modest and the weakest in 39 months. Survey participants attributed the moderation partly to subdued sales in some European markets. The softening of external demand contributed to the overall deceleration in manufacturing activity.
Price Pressures Ease, Output Charges Rise Slowly
With demand growth easing, manufacturers became less willing to raise prices. Output charges increased at the slowest pace in three months. At the same time, cost pressures also softened. Input prices rose at the weakest pace since February, although firms continued to report higher costs for chemicals, electronic items, gas, metals, petroleum products, plastics, rubber, and wood.
Input Buying and Inventory Growth Slow
Input buying growth lost momentum during June and slowed to its weakest level in two-and-a-half years. Consequently, inventories of purchased inputs increased at a softer pace, particularly among capital goods manufacturers. This cautious approach reflects manufacturers' concerns about future demand.
Hiring and Backlogs Remain Subdued
The survey also indicated limited hiring activity. Employment expanded at the weakest pace in 2026 so far as firms reported an absence of significant capacity pressures. Backlogs of work remained broadly unchanged during the month, suggesting that existing capacity was sufficient to handle current orders.
Supplier Delivery Times Lengthen
Supplier delivery performance also weakened, with average lead times shortening to the least extent in 15 months. This could indicate some supply chain disruptions or reduced urgency in deliveries due to slower demand.
Business Confidence Falls to Five-Month Low
Business confidence softened in June amid concerns over demand and market conditions. The proportion of firms expecting output growth over the next year nearly halved from May levels, with many manufacturers expressing neutral expectations. As a result, overall optimism among manufacturers fell to a five-month low. The HSBC report noted, "The PMI report stated 'Falling from 55.0 in May to 54.2 in June, the seasonally adjusted HSBC India Manufacturing Purchasing Managers' Index™ (PMI) ... pointed to the second-weakest improvement in the health of the sector since mid-2022 (ahead of March)'."
