Manufacturing activity slowed to 54.2 in June 2026, its second-lowest level in four years, according to a private sector survey. This was driven by a broad-based slowdown, including in new orders and output. 

The only time the HSBC India Manufacturing Purchasing Managers’ Index (PMI) was lower during the last four years was in March 2026, the first month of the West Asia conflict. A reading above 50 denotes expansion in activity, while one below 50 implies contraction.  

“In a nutshell, all manufacturing PMI indices for India moved lower during June,” the report said. “In some cases this was a positive — such as input cost and output price inflation receding — while in others it pointed to cooling growth.” 

It added that, due to the slowdown in total new orders and international sales, buying levels, employment and output also slowed. 

“With the exception of March, rates of increase in both output and new orders were the weakest seen in four years,” the report said. “Several firms reported an improvement in demand conditions, but others noted subdued client appetite for their products and fierce market competition.”

According to Pranjul Bhandari, chief India economist at HSBC, this moderation suggests that demand has cooled slightly after the earlier surge linked to the West Asia conflict. 

Notably, the report goes on to say the primary driver of the slowdown was the capital goods sector, with the fall in growth rates in this area contrasting with accelerations at consumer and intermediate goods makers. 

“International demand for Indian goods continued to improve in June, but the pace of growth was modest and the weakest in 39 months amid reports of subdued sales to some European markets,” the report noted.

The performance in June also seems to have dampened sentiments for the year ahead, the report said. 

“Concerns over demand and market conditions dampened business sentiment in June,” it noted. “The proportion of firms forecasting output growth in the year ahead halved since May, with a large share of manufacturers signalling neutral expectations. The overall degree of optimism retreated to a five-month low.”