Manufacturing Activity Eases in June, Softer Demand Weighs on Growth

India's manufacturing sector continued to expand in June , but the pace of growth moderated as both domestic and overseas demand softened, prompting companies to slow production, hiring and purchasing activity. According to the latest HSBC India Manufacturing Purchasing Managers' Index (PMI), the index declined to 54.2 in June from 55.0 in May, indicating that while factory activity remained healthy, the momentum witnessed in previous months had eased.

A PMI reading above 50 indicates expansion in business activity, while a figure below that mark signals contraction. Although June's reading remained comfortably in growth territory, it represented the second weakest improvement in the health of India's manufacturing sector since mid-2022 , reflecting a more cautious business environment.

The monthly survey revealed that manufacturers continued to receive new orders, but the pace of growth slowed as customers became more selective in their spending. While some firms reported better demand conditions, others cited subdued customer appetite and intense market competition , which affected business volumes. As a result, growth in new orders, production, buying activity, exports and employment all moderated during the month.

Commenting on the survey, Pranjul Bhandari , Chief India Economist at HSBC , said the slowdown suggests that demand has cooled after the temporary surge witnessed earlier amid geopolitical tensions in the Middle East . She noted that growth weakened across output, new business, export orders and employment, while overseas sales recorded their slowest increase since March 2023 .

International demand for Indian manufactured goods continued to improve, but at a much slower pace than before. Export growth was the weakest in 39 months , with manufacturers attributing the moderation to softer demand from several European markets .

The report also pointed to easing inflationary pressures, offering some relief to manufacturers. With demand losing momentum, businesses became less willing to raise selling prices. Both input costs and output prices increased at a slower pace, indicating that inflation is gradually easing as global supply disruptions and geopolitical pressures begin to recede.

Hiring activity also reflected the cautious mood prevailing across the sector. Stable workloads and limited pressure on production capacity led many companies to either pause recruitment or scale back hiring plans. Consequently, employment expanded at its weakest pace of 2026 so far , while pending work remained broadly unchanged.

Business confidence also weakened during the month. Concerns over future demand and market conditions made manufacturers more cautious about the outlook. The proportion of firms expecting higher production over the next year fell sharply from May , resulting in overall optimism dropping to a five month low .

The HSBC India Manufacturing PMI , compiled by S&P Global using responses from around 400 manufacturers , remains one of the country's key indicators of factory activity. While June's figures indicate a loss of momentum, the manufacturing sector continues to remain in expansion territory, suggesting that India's industrial base remains resilient despite a more challenging demand environment.