The June manufacturing purchasing managers’ index (PMI) survey paints a mixed picture: cooling inflationary pressures, but slowing growth. The seasonally adjusted HSBC India Manufacturing PMI fell to a three-month low of 54.2 in June from 55 in May.
The final June reading was below the flash PMI estimate of 54.5. The headline PMI is a gauge of overall conditions derived from measures of new orders, output, employment, supplier delivery times and stocks of purchases. This time, the drag came from output and new orders. With the exception of March, rates of increase in both output and new orders were the weakest seen in four years, said the private survey report.
While several firms saw improved demand conditions, others noted subdued client appetite for their products and fierce market competition.
The pace of growth in international demand for Indian goods was the weakest in 39 months amid subdued sales to some European markets. Apart from supply chain disruptions and tariff pressures, what could also be playing spoilsport for Indian exports is the artificial intelligence (AI) trade, since AI-related Indian manufacturing is yet to gain scale.
Nomura’s leading index of Asia ex-Japan’s aggregate exports (NELI) surged to 121 in July, marking the highest reading in 16 years. NELI comprises nine components and has a three-month lead time. “NELI’s rise is becoming a bit more broad-based, driven by a strong upswing in tech-related indicators, but also signs of improvement in overall manufacturing and China demand. The AI tech upcycle has been the main engine driving Asian exports,” said the Nomura Global Markets Research report dated 19 June.
PMI survey participants pointed to elevated costs of chemicals, electronic items, gas, metals, petroleum products, plastics, rubber and wood. However, the PMI sub-index tracking input costs saw the slowest increase since February.
Brent crude oil price has moderated from recent peaks following the ongoing truce between the US and Iran. But its impact on macro-economic data would reflect with a lag and also depends on the level at which crude settles. With moderating demand, goods producers restrained from raising selling prices. PMI’s output charges index was at a three-month low in June.
All India wholesale price index (WPI) inflation for May accelerated to 9.68% from 8.26% in April, led by a sharp spike in fuel and power costs. The government has released a new WPI series with an updated base year of 2022-23 and an expanded range of goods measured.
Gaura Sen Gupta, economist at IDFC First Bank, cautions of significant margin pressure for the manufacturing sector. “This will result in a slowdown in real manufacturing sector GVA growth in Q1FY27. In Q4FY26, there was a one-month impact of the West Asia crisis (in March), which resulted in manufacturing GVA growth slowing to 7.3% in Q4FY26 versus 12.8% in Q3. Q1FY27 will see a full three months of impact of the West Asia crisis,” she added.
Moderating crude prices, if sustained, is a relief for overall inflation and even for manufacturers. However, slow progress of the southwest monsoon could emerge as a demand headwind, especially for rural-focused product categories. But for now, business sentiment is already dampened.
The proportion of firms forecasting output growth in the year ahead halved since May, with a large share of manufacturers signalling neutral expectations, said the PMI report. The PMI sub-index, gauging business optimism among manufacturers, retreated to a five-month low in June.