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India's Private Sector Growth Moderates in June as Services Activity Hits 17-Month Low, Manufacturing Eases

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India's Private Sector Growth Moderates in June as Services Activity Hits 17-Month Low, Manufacturing Eases

Growth in India's private sector moderated in June as a cooling in new orders and slower inventory accumulation pulled business activity down from recent elevated levels.

The HSBC Flash India Composite Output Index slipped to 57.4 from 59.3 in May, marking the slowest pace of expansion since March, according to data released by S&P Global and HSBC on Tuesday.

Both sectors saw momentum ease. The manufacturing output index fell to a two-month low of 57.4, down from 58.0 in May, while the headline Manufacturing PMI ticked down to 54.5 from 55.0.

Meanwhile, the services sector hit a 17-month low, with its business activity index dropping to 57.3 from 59.8.

"Growth of manufacturing output softened a tad as inventory-building lost steam after a few hectic months," HSBC Chief India Economist Pranjul Bhandari said.

"New export orders remained resilient and the order-to-inventory ratio ticked up, pointing at resilient manufacturing activity down the line. Input costs across the private sector rose, but at the slowest pace in five months."

While market competition weighed on the pace of expansion, cost pressures provided some relief. Overall input costs and output charges rose at their slowest rates in months.

In terms of trade, services exports accelerated, while manufacturing export growth sank to its weakest level since March 2023.

Regional supply chains could see relief as the U.S. and Iran advance toward a potential deal to defuse Middle East tensions. However, any domestic economic recovery will likely be gradual, even as maritime traffic normalizes through the Strait of Hormuz, according to ING.

"Industries faced higher freight charges, longer delivery times, and rising feedstock costs during the peak of tensions," ING analysts Deepali Bhargava, Lynn Song, and Min Joo Kang wrote in a Monday note.

"Although input cost pressures have eased from their March-April highs, they remain above pre-conflict levels. With output prices adjusting more slowly due to weak pricing power and incomplete pass-through, corporate margins-especially in energy-intensive sectors-continue to face sustained pressure."

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