India Manufacturing PMI Eases to Near Five-Year Low in July as Domestic Demand Softens

Growth in India's manufacturing sector slowed to its weakest pace in nearly five years in July, as softer domestic demand weighed on new orders, purchasing activity and employment, even as export demand remained resilient.

The seasonally adjusted HSBC India Manufacturing Purchasing Managers' Index fell to 53.5 in July from 54.2 in June, marking its lowest reading since August 2021, according to a survey released by HSBC and S&P Global. However, the index remained above the 50-mark that separates expansion from contraction.

The survey showed that manufacturers continued to benefit from steady demand conditions, supporting further gains in output. However, growth in total sales, input purchases and employment moderated during the month. Cost pressures also eased, allowing firms to limit the pace of increases in selling prices.

New orders expanded at the second-slowest pace in more than four years, with firms citing difficult market conditions and weaker client interest in some products. Advertising efforts and underlying demand resilience nevertheless continued to support sales.

In contrast, export demand improved markedly, with companies reporting stronger orders from markets such as Canada, Egypt, Indonesia, Kenya, Nepal, South Africa, Thailand and the UAE.

Consumer goods producers recorded the weakest performance, while manufacturers of capital and intermediate goods reported stronger growth in orders and production.

Companies also accelerated efforts to rebuild inventories amid concerns over renewed geopolitical tensions and potential supply-chain disruptions. Input delivery times improved sharply, enabling manufacturers to increase stocks of both raw materials and finished goods.

Inventories of finished goods rose at the fastest pace in more than 11 years.

Employment growth slowed for the third consecutive month and was the weakest in the current 29-month expansion cycle. Input cost inflation eased to a five-month low, although transportation costs remained elevated.

"Output and new export orders strengthened, pointing to resilient demand, particularly from overseas markets," HSBC Chief India Economist Pranjul Bhandari said. She added that firms appeared to be passing on higher costs to customers to protect profit margins.

Business confidence improved from June's recent low, supported by expectations of stronger demand, infrastructure spending and increased customer enquiries.