India factory growth cools in June as orders slow

Its manufacturing PMI fell to a 4-year low.

India’s manufacturing sector lost momentum in June, with growth in output and new orders slipping to their weakest pace in four years, outside of March, as businesses reported softer client demand and stiffer competition for orders.

The headline HSBC India Manufacturing Purchasing Managers’ Index, compiled by S&P Global, fell to 54.2 in June from 55.0 in May — marking its second-weakest reading since the middle of 2022, barring March. Despite this, the latest figure remained comfortably above the 50.0 threshold, which denotes expansion, and in line with the survey’s long-run average.

Capital goods producers bore the brunt of the slowdown, with growth rates there falling sharply even as consumer and intermediate goods makers picked up pace. Overseas sales continued to rise, but at their softest clip in 39 months, with manufacturers pointing to weaker demand from parts of Europe.

Cooling demand also took the edge off pricing pressures. Firms raised their output charges only modestly — the smallest increase in three months — whilst input costs rose at their slowest rate since February, even as respondents flagged continued price rises for chemicals, electronics, metals and petroleum-based products.

Purchasing activity slowed to its weakest in two-and-a-half years, and finished goods inventories fell at their sharpest rate in six months, as firms brought stock levels back in line with softer demand. Hiring also lost steam, expanding at its weakest rate so far this year amid a broad absence of capacity pressures, whilst supplier delivery times shortened only marginally.

Business confidence took a knock too: the proportion of manufacturers forecasting output growth over the coming year halved compared with May, dragging overall optimism down to a five-month low.

Pranjul Bhandari, chief India economist at HSBC, said the moderation suggested demand had cooled slightly after the earlier surge linked to the Middle East conflict, adding that softer price indices pointed to easing inflation pressures as geopolitical disruptions began to recede.