India's Factory Momentum Cools in June, Marking the Second Slowest Growth in Four Years as Overseas Orders Weaken

India's manufacturing PMI slipped to 54.2 in June from 55 in May, one of its weakest readings in four years as new orders, exports and hiring all lost pace.

Activity on India's factory floors lost some of its usual buzz last month. Growth in the country's manufacturing sector slowed in June, and the softer pace of new business orders and overseas sales fed directly into weaker purchasing, employment and production. The manufacturing Purchasing Managers' Index (PMI) from HSBC India, released on Wednesday, shows this was the second slowest expansion the sector has seen in four years.

According to the data, India's manufacturing PMI eased to 54.2 in June, down from 55 in May. That marks the sector's second weakest showing since the middle of 2022.

How the Index Is Built
The monthly report is put together by combining several indicators, including new orders, output, employment, suppliers' delivery times and stocks of purchased goods. A reading above 50 signals that activity is expanding, while anything below 50 points to a decline. Many companies in the survey said demand conditions had improved, while some flagged soft demand for their products and stiff competition in the market.

Why the Pace Slowed
Pranjul Bhandari, Chief Economist for India at HSBC, said the manufacturing PMI slipped from 55.0 in May to 54.2 in June. The figure still points to expansion, but at a slower speed. She noted that demand has softened somewhat after the earlier surge linked to the West Asia conflict. As a result, output, new orders, export orders and employment all grew at a slower clip. In the global market, sales recorded their weakest increase since March 2023.

Demand From Foreign Markets Dips
The report notes that international demand for Indian goods did rise in June, but at the softest pace in 39 months. Weak sales in some European markets are seen as a key reason behind this. The picture was no different on the pricing front. With demand growth losing steam, goods producers appeared reluctant to raise prices. That is why the rise in output prices stayed modest and was the lowest recorded in the past three months.

Hiring Stalls and Business Confidence Wavers
On the jobs front, workloads held steady and, with little pressure from demand, companies either paused fresh hiring or scaled it back. Because there was no strain on capacity, recruitment activity remained limited at the close of the first quarter of the fiscal year. Meanwhile, worries about demand and market conditions dented the confidence of investors and businesses in June. The share of companies expecting output to grow over the next year fell to half of what it was in May, and business optimism slid to a five-month low.

What this means for you
• Across India: A slower pace of factory orders and hiring means job seekers may find fewer fresh openings in the manufacturing sector for now.
• For investors and businesses: Softer demand and weakening confidence could weigh on production and earnings momentum in the months ahead.

Questions & Answers

1. What was India's manufacturing PMI in June?
It eased to 54.2 in June, down from 55 in May.

2. What does a PMI reading above or below 50 mean?
A reading above 50 signals expansion in activity, while a reading below 50 points to a decline.

3. Why did manufacturing momentum slow down?
Demand softened after the earlier surge tied to the West Asia conflict, which slowed the pace of output, new orders, exports and employment.

4. What was the situation with foreign demand?
International demand for Indian goods did rise in June, but at the weakest pace in 39 months, largely due to soft sales in some European markets.

5. How did this affect employment?
With little pressure from demand, companies paused or reduced fresh hiring, keeping recruitment limited at the end of the first quarter.

6. How low did business confidence fall?
Business optimism slid to a five-month low, and the share of companies expecting output to grow over the next year fell to half of what it was in May.

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