New Delhi: India’s manufacturing sector lost momentum in June as growth in new orders, exports, output and employment moderated, signalling a broad-based cooling in factory activity after months of strong expansion. Softer demand, particularly from overseas markets, alongside easing inflationary pressures and weakening business confidence, weighed on overall performance even as the sector extended its expansion streak.
The seasonally-adjusted HSBC India Manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, fell to 54.2 in June from 55 in May. The latest reading also came in below the flash estimate of 54.5 released last month.
The PMI, a weighted average of new orders, output, employment, suppliers’ delivery times and stocks of purchases, remained comfortably above the 50 mark that separates expansion from contraction, extending the manufacturing sector’s growth streak to 56 consecutive months. Even so, June marked the second-slowest pace of expansion since mid-2022, ahead of only March’s 53.9, and was broadly in line with the survey’s long-run average.
Demand Loses Momentum
Manufacturing growth weakened as domestic and overseas demand softened simultaneously. Excluding March, both output and new orders recorded their weakest rates of expansion in four years, highlighting a significant loss of momentum from the stronger growth seen earlier this year.
“With the exception of March, rates of increase in both output and new orders were the weakest seen in four years. Several firms reported an improvement in demand conditions, but others noted subdued client appetite for their products and fierce market competition,” the survey said.
The slowdown was driven largely by capital goods manufacturers, while consumer and intermediate goods producers continued to post relatively faster growth.
International demand also weakened noticeably. Export orders expanded at their slowest pace since March 2023, while overall international sales recorded their weakest increase in 39 months as demand from some European markets softened.
“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.
Inflation Pressures Ease
Manufacturers faced softer cost pressures during June, with input price inflation easing to its slowest pace since February. Companies nevertheless continued to report higher prices for chemicals, electronic items, gas, metals, petroleum products, plastics, rubber and wood.
“Meanwhile, both the input and output price indices declined, pointing to softer inflation pressures as geopolitical disruptions begin receding,” Bhandari added.
Weaker demand growth also curbed pricing power. Selling prices rose at the slowest pace in three months as firms became more cautious about passing higher costs on to customers.
Purchasing activity expanded at its weakest pace in two-and-a-half years, resulting in slower growth in input inventories, particularly among capital goods producers. At the same time, finished goods inventories contracted at the fastest pace in six months as manufacturers aligned production and stock levels more closely with prevailing demand.
Confidence Takes Hit
The slowdown in demand also weighed on hiring. Employment increased at its weakest pace of 2026, while backlogs of work remained broadly unchanged, indicating limited capacity pressures despite continued expansion. Supplier delivery times improved further, although the pace of improvement was the weakest in 15 months.
Business confidence deteriorated during the month as concerns over demand conditions and market competition clouded the outlook. The share of manufacturers expecting higher output over the coming year halved compared with May, pulling overall optimism down to a five-month low and signalling increasing caution about the strength of demand in the months ahead.