India’s manufacturing recovered in June amid strong demand, record hiring after slipping to a 3-month low in May

New Delhi: India’s manufacturing activities, which had slipped to a three-month low in May, recovered during June, supported by an increase in new orders, output, and a record upturn in employment.

The HSBC final India Manufacturing Purchasing Managers Index (PMI), compiled by S&P Global, stood at 58.3 in June, 57.5 in May, and 58.8 in April.

The June reading was slightly lower than S&P’s flash projection of 58.5 last month. However, the index has remained above its long-run average and the 50-mark, which separates contraction from expansion, for nearly three years.

“June data showed that buoyant demand conditions spurred the expansions in new orders, output and buying levels. Concurrently, firms raised employment at the fastest rate seen in more than 19 years of data collection,” the survey said.

“Cost pressures receded from May, but were nevertheless among the highest over the past two years. As a result, companies lifted selling prices to the greatest extent since May 2022,” it added.

Strong demand, moderating costs

The June report highlighted that the underlying demand remained favourable and new business continued to flow in.

The performance of the consumer goods industry was especially strong, although substantial increases were also noted in the intermediate and investment goods categories.

Maitreyi Das, Global Economist at HSBC, said that while input buying activity also rose during June, input costs moderated slightly but remained at elevated levels.

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“The Indian manufacturing sector ended the June quarter on a stronger footing. The headline manufacturing PMI rose by 0.8 percentage points to 58.3 in June, supported by increased new orders and output. Consequently, firms increased their hiring at the fastest pace in over 19 years,” Das said.

“While the overall outlook for the manufacturing sector remains positive, the future output index receded to a three-month low, albeit it remains above the historical average,” Das added.

Incidentally, India’s infrastructure output, which accounts for about two-fifths of the country’s industrial production, rose 6.3% year-on-year in May, decelerating from April’s 6.7% expansion. 

The sector was hurt by a contraction in cement and crude oil and a slowdown in refinery products and steel, according to the provisional data from the ministry of commerce and industry released last week.

The latest core sector data showed that five of the eight core industries reported a rise in production, while output in crude oil, fertilisers and cement sectors contracted during May.

Policy uncertainty, positive outlook

The Reserve Bank of India expects real GDP growth to be 7% in FY25.

The projections of a normal monsoon bode well for agriculture output growth, with the government’s robust capital expenditure, strong investment demand, and upbeat consumer and business sentiment making the Indian economy resilient.

However, geopolitical tensions and the divergence of monetary easing paths of major central banks pose policy uncertainty.

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The latest HSBC PMI-manufacturing survey, however, expects the outlook for India's manufacturing sector to remain positive, with nearly 29% of panellists expecting output growth over the coming year.

“A demand environment conducive to growth allowed manufacturers in India to share additional cost burdens with their clients (during June). Selling charges were raised to the greatest extent in over two years,” the survey said.

“June saw new export orders increase substantially again. Companies attributed higher inflows of new work from overseas to better demand from Asia, Australia, Brazil, Canada, Europe and the US. Despite easing from May, the rate of expansion was well above its long-run average,” it added.

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