India's private sector manufacturing activity expanded at its second-slowest pace in four years during June, according to the latest HSBC Manufacturing PMI survey. The HSBC India Manufacturing Purchasing Managers' Index (PMI) fell to 54.2 in June from 55 in May, representing a decline from the previous month's reading. As reported by Reuters, this reading was only slightly lower than the preliminary estimate of 54.5 and was in line with the long-run series average, though it was the second-lowest since mid-2022. The index remained above the crucial 50 mark that separates expansion from contraction, but the reading was lower than the flash estimate of 54.5 released last month. The cooling was primarily driven by slower growth in output and hiring, with the sector experiencing its second-weakest growth in four years as demand for goods impacted manufacturing activity across multiple indicators. According to IANS, the seasonally adjusted PMI remained comfortably above the 50-mark, signalling continued expansion in the sector despite the moderation in growth rates.
Growth in manufacturing demand experienced a significant deterioration, with new orders rising at their second-weakest rate since June 2022 after hitting a three-month high in May. According to Reuters, output also expanded at the second-slowest rate since mid-2022 as capital goods dragged. The survey revealed that growth in international sales slowed to its weakest level in 39 months as sales to European markets softened, with firms citing subdued demand from European clients. This decline contributed to the overall moderation in manufacturing activity across multiple indicators, with several firms reporting an improvement in demand conditions while others noted subdued client appetite for their products and fierce market competition. The slower growth in output and hiring was the primary driver of the sector's second-weakest performance in four years, as cooling demand for goods significantly impacted manufacturing activity. As per IANS, export demand also remained positive during the month, although the pace of growth moderated, indicating mixed trends in international markets.
The manufacturing sector experienced mixed trends in employment and cost pressures during June. As reported by Reuters, hiring reflected the softer demand environment, with employment growing at its weakest pace this year and 97% of firms keeping headcount unchanged citing adequate capacity. The survey indicated that input cost inflation eased to a four-month low, though firms continued to report higher prices for various items including chemicals, electronic items, gas, metals, petroleum products, plastics, rubber and wood. Output charges rose at their slowest rate in three months and 93% of companies left fees unchanged from May, as firms were more reluctant to raise prices due to cooling demand conditions. According to IANS, employment continued to rise in June, albeit at a slower pace, showing resilience despite the challenging demand environment. Despite the easing of cost pressures, the sector faced challenges from slower output and hiring growth, with firms maintaining cautious hiring approaches amid subdued demand conditions.
The manufacturing sector's demand weakness has significantly impacted business sentiment, with concerns over demand and market conditions dampening business confidence to a five-month low. According to Reuters, this represents a notable shift from the previous month's readings. Despite the moderation in growth rates, the manufacturing sector maintained its expansion trajectory for an extended period, with the manufacturing sector's growth streak extending to 56 consecutive months as of the latest data. Pranjul Bhandari, chief India economist at HSBC, noted that the moderation suggests demand has cooled slightly after the earlier surge linked to the Middle East conflict, with growth slowing across multiple manufacturing indicators. The decline in business confidence reflects the broader impact of cooling demand on manufacturing operations, with firms expressing concerns about market conditions and future demand prospects. As per IANS, the moderation was attributed to slightly cooled demand, subdued client appetite, and market competition, while both the input and output price indices declined, pointing to softer inflationary pressures as geopolitical disruptions begin receding.
