India's manufacturing sector experienced a notable deceleration in June, with the HSBC India Manufacturing PMI falling to 54.2 from 55.0 in May. According to reports from Business Standard, this decline represents the second-weakest improvement in sector health since mid-2022, trailing only March's reading. The latest reading was also lower than the flash estimate of 54.5 released last month, as reported by HSBC. Despite the moderation, the index remains above the 50-point threshold that indicates expansion, though growth has lost significant momentum compared to recent months. 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, with data collected between June 10 and June 24. As noted by HSBC's chief India economist Pranjul Bhandari, the moderation suggests demand has cooled slightly after the earlier surge linked to the Middle East conflict. The survey showed that barring March, growth in output and new orders was the weakest in four years, indicating a significant slowdown in manufacturing activity.
International demand for Indian manufactured goods continued to rise in June but at the weakest pace in 39 months, according to the survey data. As reported by Business Standard, firms reported subdued sales to some European markets, contributing to the overall moderation in export performance. Export order growth slowed to its weakest pace since March 2023, reflecting weaker international demand conditions. Growth in international demand slowed to its weakest level in 39 months, as sales in European markets softened, as noted by HSBC. Output charges rose at the slowest pace in three months, with companies less inclined to raise selling prices due to moderating demand growth. Both the input and output price indices declined, pointing to softer inflation pressures as geopolitical disruptions begin receding, according to HSBC's chief India economist Pranjul Bhandari. Meanwhile, purchasing prices rose at the slowest pace since February, indicating softer cost pressures across the sector, though manufacturers continued to report higher costs for chemicals, electronic items, gas, metals, petroleum products, plastics, rubber and wood. The survey also highlighted that AI-related Indian manufacturing is yet to gain scale, which could be impacting export performance alongside supply chain disruptions and tariff pressures.
Labor market conditions reflected the broader growth moderation, with employment expanding at the slowest pace so far in 2026. According to the survey results, backlogs of work were broadly unchanged, and the lack of capacity pressures contributed to the subdued hiring environment. Growth in purchasing activity eased to its weakest level in two-and-a-half years, leading to a softer rise in purchase stocks, particularly among capital goods producers. Finished goods inventories fell outright, with the decline being the sharpest in six months, as firms better aligned production and stock levels with prevailing demand conditions. This marked the end of a two-month period of accumulation as manufacturers adjusted their inventory management strategies to match current market conditions.
Cost pressures eased significantly across the manufacturing sector, with input price inflation slowing to its weakest level since February, while output price inflation softened to a three-month low. However, manufacturers continued to report higher costs for specific items including chemicals, electronic items, gas, metals, petroleum products, plastics, rubber and wood. Business confidence weakened significantly, with the proportion of firms expecting output to grow over the next 12 months halving from May, taking overall optimism to a five-month low. As reported by Business Standard, concerns over demand and market conditions persisted among manufacturers, with the survey noting that growth remained strong but in line with the long-run series average. The manufacturing sector's growth streak extended to 56 consecutive months, despite the recent moderation in activity levels and dampened business confidence. Gaura Sen Gupta, economist at IDFC First Bank, cautions of significant margin pressure for the manufacturing sector, noting that Q1FY27 will see a full three months of impact of the West Asia crisis compared to Q4FY26's one-month impact that resulted in manufacturing GVA growth slowing to 7.3% versus 12.8% in Q3.
