India’s manufacturing sector activity slowed down to a near five-year low in July as domestic demand slowed down, S&P Global said on Monday.
The HSBC India Manufacturing Purchasing Managers’ Index (PMI) fell to 53.5 in July from 54.2 in June. Not only is the July manufacturing PMI the lowest since August 2021, it is also below the long-term series average of 54.2, S&P Global said.
A PMI reading of more than 50 denotes expansion in activity from the previous month, while a print below 50 indicates contraction. Job creation across the manufacturing sector in July with the rate of increase in employment the slowest in the 29 months.
Input cost pressures fell to a five-month low, though companies reported higher prices for transportation in particular. Selling prices saw a moderate rise in July, which suggests manufacturing firms passed on price hikes to consumers to protect margins.
“Manufacturers in India continued to benefit from demand resilience, with a sustained rise in new orders underpinning a further expansion in output during July,” S&P Global said. “Growth cooled again across some metrics, however, such as total sales, input purchasing and employment.”
Growth in new orders was the second-slowest in over four years, with demand hit by increasingly challenging market conditions and reduced client interest for key items, S&P Global said.
While domestic demand moderated, new export orders increased at a faster rate in July. Manufacturing firms saw increased orders from Canada, Egypt, Indonesia, Kenya, Nepal, South Africa, Thailand and the United Arab Emirates.
Slower demand hit production volumes, which grew at the slowest rate since mid-2022, S&P Global said. Consumer goods was a particular area of weakness in July, posting notably softer increases in new orders and output.
“The suppliers’ delivery times index rose in July, an encouraging sign that supply chain delays are continuing to unwind. However, renewed tensions in the Middle East have raised fresh doubts about how durable these improvements will be,” said Pranjul Bhandari, chief India economist at HSBC.
“In response, manufacturers appear to be rebuilding buffers: inventories of both inputs and finished goods increased alongside a rise in purchasing volumes, suggesting firms are securing supply and limiting exposure to potential disruption,” Bhandari said.
Business sentiment among manufacturing firms improved in July, with companies signalling a positive outlook for demand, infrastructure projects, and new client enquiries, S&P Global said.