India's manufacturing sector growth ticks higher in June; record upturn in employment

PMI rose by 0.8 percentage points over the previous month, supported by robust expansion in production and new orders, which led to the fastest pace of monthly hiring in 19 years, showed an industry survey report.

India’s manufacturing sector witnessed a strong showing in June, with PMI rising by 0.8 percentage points over the previous month supported by robust expansion in production and new orders that led to the fastest pace of monthly hiring in 19 years, showed an industry survey report released by S&P Global on Monday.

Purchasing Managers’ Index (PMI) for manufacturing rose to 58.3 in June from 57.5 recorded in the previous month. The PMI print above 50 indicates growth in the sector while below 50 shows contraction.  

Growth in the Indian manufacturing sector recovered some of the ground lost in May, with the headline PMI posting nearly five points above its long-run average, S&P Global noted in its monthly report. Manufacturing activities were impacted in May due to heatwaves.

“June data showed that buoyant demand conditions spurred the expansions in new orders, output and buying levels,” the rating agency said.

Manufacturers increased hiring on the back of buoyant demand and positive outlook. The rate of job creation was sharp and the strongest seen since data collection started in March 2005.

The outlook for the manufacturing sector remained positive, with nearly 29% of those surveyed expecting an output growth over the coming year. Firms forecast further improvements in demand and order book volumes in the year ahead, with advertising and greater client enquiries also underpinning optimism. However, the overall level of confidence receded to a three-month low in June.

The performance of the consumer goods industry was especially strong, although substantial increases were also noted in the intermediate and investment goods categories.

Overall operating expenses of manufacturers jumped due to an increase in staff expenses coupled with rising material and transportation costs. The rate of input price inflation eased since May, but was nonetheless among the highest since August 2022.

“On the price front, input costs moderated slightly in June, but remained at elevated levels. Manufacturers were able to pass on higher costs to customers, as demand remained robust, resulting in improved margin,” said Maitreyi Das, Global Economist at HSBC.

“While the overall outlook for the manufacturing sector remains positive, the future output index receded to a three-month low, albeit it remains above the historical average,” Das added.

There was a substantial increase in new export orders. Companies attributed higher inflows of new work from overseas to better demand from Asia, Australia, Brazil, Canada, Europe and the US. Despite easing from May, the rate of expansion was well above its long-run average.

Input buying activity rose in June, extending the current sequence of monthly expansions to three years. Among the main determinants of growth listed by surveyed companies were stock replenishment efforts, robust demand and rising output requirements.