India's manufacturing sector continued to expand in June 2025, with the HSBC India Manufacturing Purchasing Managers' Index (PMI) clocking 54.2, comfortably above the 50-point threshold that separates growth from contraction. The reading, drawn from HSBC Flash India PMI data released on Wednesday, 1 July, confirms a sustained improvement in operating conditions, even as the pace of expansion moderated from the previous month.

Key Developments

Growth in new orders and output both slowed during June. While a segment of manufacturers reported firming demand, others pointed to subdued client appetite and intensifying market competition as headwinds. Export demand remained in positive territory but also decelerated month-on-month.

On the cost front, both input cost inflation and output price inflation eased during the month — a development that analysts see as a sign of softening inflationary pressures across the sector. Purchasing activity moderated as well, leading to a slower accumulation of input inventories, while finished goods inventories declined as firms calibrated production to match prevailing demand levels.

What Economists Are Saying

Pranjul Bhandari, Chief India Economist at HSBC, said the June reading signalled continued expansion but flagged the moderation as meaningful. 'The moderation suggests demand has cooled slightly after the earlier surge linked to the Middle East conflict. Growth slowed across output, new orders, export orders and employment, while both the input and output price indices declined, pointing to softer inflationary pressures as geopolitical disruptions begin receding,' she said.

Employment and Inventory Trends

Employment in the manufacturing sector continued to rise in June, though the pace of job creation slowed compared to prior months. The slower hiring trend mirrors the broader moderation in output and order growth, suggesting firms are adopting a cautious stance on capacity expansion.

Inventory dynamics also shifted: the build-up of input stocks lost momentum after several months of robust accumulation, while finished goods stocks declined — a pattern consistent with producers drawing down buffers as forward order visibility moderates.

Context and Broader Picture

This comes amid a broader easing in India's private sector activity that was flagged in earlier HSBC Flash PMI data for June, which showed overall new orders continuing to expand strongly even as manufacturing output growth softened. The earlier inventory-building cycle — which had sustained elevated PMI readings for several months — appears to be losing steam as geopolitical disruptions from the Middle East conflict begin to recede.

Notably, a PMI of 54.2 still represents a healthy expansion by historical standards. India's manufacturing PMI has remained above 50 for an extended run, reflecting structural resilience even through external demand shocks. The question for the months ahead is whether domestic demand can pick up the slack as the export impulse moderates.

What to Watch Next

Markets and policymakers will track whether the demand softness in June proves transient or deepens into the third quarter. A sustained easing in input and output prices, if it persists, could give the Reserve Bank of India (RBI) additional room on monetary policy. The next PMI reading will be a key signal on whether India's manufacturing momentum is stabilising or entering a more prolonged slowdown phase.