Manufacturing PMI slows to 54.2 in June on softer demand

Manufacturing activity slowed in June as growth in new orders and export demand moderated, while easing input costs and output prices signalled softer inflationary pressures, according to a private sector survey.

The seasonally adjusted HSBC India Manufacturing Purchasing Managers' Index (PMI) fell to 54.2 in June from 55.0 in May, marking the second-slowest expansion since mid-2022, better than only March's 53.9.

However, the reading remained comfortably above the 50-mark separating expansion from contraction and was broadly in line with the series' long-run average.

The survey showed that, excluding March, both output and new orders grew at their weakest pace in four years. While several manufacturers reported stronger demand, others cited subdued client appetite and intense market competition.

The slowdown was largely driven by capital goods producers, while consumer and intermediate goods manufacturers recorded faster growth rates.

International demand for Indian-manufactured goods also softened, with export orders expanding at the weakest pace since March 2023 amid subdued sales to some European markets.

“The moderation suggests demand has cooled slightly after the earlier surge linked to the Middle East conflict. Growth slowed across output, new orders, export orders and employment, with international sales recording their weakest increase since March 2023,” said Pranjul Bhandari, chief India Economist at HSBC.

"Meanwhile, both the input and output price indices declined, pointing to softer inflation pressures as geopolitical disruptions begin receding," she added.

Low business confidence

The survey indicated that manufacturers faced less intense cost pressures during the month, with input price inflation easing to its slowest pace since February. Firms nevertheless continued to report higher prices for chemicals, electronic items, gas, metals, petroleum products, plastics, rubber and wood.

Softer demand growth also made manufacturers more cautious in raising selling prices, resulting in the weakest increase in output charges in three months.

Purchasing activity lost momentum during the month, with input buying growing at its weakest pace in two-and-a-half years. Consequently, stocks of purchases rose at a slower rate, particularly among capital goods manufacturers.

At the same time, finished goods inventories contracted at the fastest pace in six months as firms aligned production and inventories more closely with prevailing demand conditions.

The moderation in demand also weighed on hiring activity. Employment increased at the weakest pace so far in 2026, while backlogs of work remained broadly unchanged, indicating an absence of significant capacity pressures. Supplier delivery times continued to improve, although the extent of improvement was the weakest in 15 months.

Business confidence weakened during the month as concerns over demand and market conditions weighed on manufacturers' outlook. The share of firms expecting output growth over the coming year halved compared with May, pulling overall optimism down to a five-month low.