Indian stock markets opened sharply lower on Tuesday, with Sensex dropping 500 points at pre-open and Nifty falling below 23,700, reflecting investor concerns over the latest economic data. The market decline comes as Brent crude oil topped $100 per barrel, adding to inflationary pressures that have contributed to the economic slowdown. This market reaction underscores the immediate impact of the PMI data on investor sentiment and concerns about the broader economic outlook.
India's private sector activity expanded at its slowest pace in more than three years in July, with the HSBC Flash India Composite PMI Output Index falling to 54.3 from 57.1 in June. According to the HSBC Flash India PMI released by S&P Global, this marks the weakest expansion in private sector activity since March 2022. The figure also missed the Reuters poll median estimate of 57.7, though it remained above the 50 threshold that separates expansion from contraction. The survey attributed the slowdown to increasingly challenging market conditions, competitive pressures, order cancellations, reduced client enquiries and shortages of key raw materials.
The moderation was primarily driven by the services sector, with the Services PMI Business Activity Index declining to 53.1 from 57.4, representing its weakest reading in 53 months. In contrast, manufacturing showed relatively better resilience, with the Manufacturing PMI Output Index rising to 57.0 from 56.3, though the headline Manufacturing PMI eased to 53.9 from 54.2. As reported by S&P Global, new orders continued to grow but at their weakest pace in nearly four-and-a-half years. The softer reading reflected slower growth in services amid weaker demand, order cancellations and fewer customer enquiries.
Despite the overall slowdown, export orders strengthened across both sectors, with manufacturers recording the stronger improvement. According to the report, international sales rose at the fastest pace since March at the composite level. However, cost pressures intensified during July as businesses faced higher fuel, labour, raw material and transportation expenses. Companies also increased selling prices at a faster pace, pushing output price inflation to a three-month high. This inflationary pressure contributed to employment rising for the seventh straight month, though hiring remained modest, with services adding more jobs than manufacturing.
Business confidence slipped to a six-month low, reflecting the challenging operating environment and cautious expectations despite hopes of stronger demand over the next year. As reported by HSBC, renewed tensions in the Middle East have once again resulted in firms building buffers to manage uncertainties around supply-side shocks. Finished goods and input inventories increased alongside a pick-up in purchasing volumes, with both output and new export orders rising even as overall manufacturing growth eased slightly. The report indicates that the strong momentum seen across India's private sector over the past two years is beginning to ease, with services losing steam while manufacturing has yet to deliver a broader acceleration.
