India's manufacturing sector saw a further slowdown in July, with factory activity falling to its weakest pace in almost five years.
The HSBC India Manufacturing Purchasing Managers' Index dropped to 53.5 in July from 54.2 in June. A reading above 50 still shows expansion, but it is below the long‑run average of 54.2, signalling a slower growth rate.
The slowdown was driven mainly by a sharp decline in new business. New orders grew at the second‑weakest pace in more than four years as firms faced tougher market conditions and weaker client interest, even though advertising efforts and resilient demand helped sales.
With demand easing, manufacturers cut back on input purchases and hiring. The report noted that companies were scaling down their procurement and workforce expansion.
Purchasing activity expanded at its slowest pace in 31 months, while employment growth fell for the third straight month, the lowest rate in the current 29‑month expansion cycle.
Exports, however, emerged as a bright spot. Overseas demand picked up faster, with higher orders from Canada, Egypt, Indonesia, Kenya, Nepal, South Africa, Thailand and the UAE.
Production continued to rise, but output growth was among the softest since mid‑2022, according to the survey.
Supply chains improved as supplier delivery times shortened at a near‑record pace. Manufacturers rebuilt inventories of raw materials and finished goods to guard against potential disruptions from renewed geopolitical tensions.
Input cost inflation eased to a five‑month low, even though transportation costs rose. Firms raised selling prices moderately to protect margins.
Business confidence improved from June's low, driven by expectations of stronger demand, infrastructure spending and new client enquiries.
HSBC chief India economist Pranjul Bhandari said, "The suppliers’ delivery times index rose in July, indicating supply chain delays are unwinding. However, renewed tensions in the Middle East raise doubts about how durable these improvements will be."
Overall, while manufacturing growth remains positive, the sector is facing headwinds from softer domestic demand, but stronger exports and improving supply chains offer some relief.