India Private Sector Growth Slows To 3-Year Low In July, Flash PMI Slumps To 54.3

India’s private sector growth slowed significantly in July, reaching its weakest pace in more than three years as business activity and new order growth moderated amid rising cost pressures, according to the HSBC Flash India PMI released by S&P Global.

The HSBC Flash India Composite PMI Output Index declined to 54.3 in July from 57.1 in June, marking the slowest expansion in private sector activity since March 2022.

The slowdown was attributed to challenging market conditions, increased competition, order cancellations, weaker client enquiries and shortages of key raw materials.

New orders continued to expand but recorded their weakest growth rate in nearly four-and-a-half years, indicating a moderation in demand momentum.

The decline was largely driven by the services sector. The Services PMI Business Activity Index dropped sharply to 53.1 in July from 57.4 in June, marking its lowest reading in 53 months.

Manufacturing activity, however, showed greater resilience, with the Manufacturing PMI Output Index improving to 57.0 from 56.3.

Despite stronger factory output, the headline Manufacturing PMI eased slightly to 53.9 from 54.2.

Export demand remained a positive factor, with international sales increasing across both manufacturing and services sectors. At the overall private sector level, export orders grew at their fastest pace since March.

Cost pressures intensified during the month, with input prices and output charges rising at faster rates compared with June. Businesses reported higher expenses related to fuel, labour, raw materials and transportation.

Companies increased inventories of finished goods and inputs as firms attempted to build buffers against supply uncertainties.

Employment continued to rise for the seventh consecutive month, although the pace of hiring remained limited. Business confidence also weakened, reaching a six-month low amid concerns over market conditions and geopolitical risks.

Pranjul Bhandari, Chief India Economist at HSBC, said renewed tensions in the Middle East had prompted companies to create additional buffers to manage potential supply disruptions.

She noted that inventories and purchasing activity increased as firms prepared for uncertainty.

Bhandari added that while manufacturing growth moderated slightly, output and export orders remained positive.

However, rising price pressures, particularly higher output charges, indicated that businesses were attempting to protect profit margins amid increasing costs.