India’s private sector growth slowed to a 16-month low in July, with the HSBC Flash India PMI Composite Output Index dropping to 54.3 from 57.1 in June. The decline was largely driven by a cooling services sector, even as manufacturing exports remained robust.
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Business activity in India experienced its most significant deceleration since March 2022 during the month of July. The HSBC Flash India PMI Composite Output Index, a key metric tracking overall private sector health, fell to 54.3 compared to 57.1 in the previous month. While any reading above 50 still indicates growth, the sharp decline highlights a broader cooling trend in domestic economic activity.
Services Sector Faces Growth Challenges
The primary pressure on the composite index came from the services sector, which recorded its slowest pace of expansion in 53 months. Businesses in this category noted a rise in reduced client inquiries and order cancellations, suggesting that demand for services has become more sensitive to current market conditions. This slowdown is particularly notable given the sector’s recent role as a major driver of India's economic output.
Manufacturing Sector Resilience
In contrast to the services slowdown, the manufacturing sector maintained a relatively stable performance. Factory operators continued to increase their purchasing of raw materials, leading to higher levels of input and finished goods inventories. While the HSBC Flash India Manufacturing PMI saw a marginal dip to 53.9 from 54.2 in June, the sector continued to show signs of operational efficiency. Manufacturers benefited from improved vendor performance, allowing for a steady production pace despite the challenging domestic demand environment.
Export Strength and Rising Costs
One of the most encouraging trends identified in the July data is the strength of international business. New export orders across both manufacturing and services firms grew at their fastest pace since March. This suggests that while domestic consumption has faced hurdles, Indian firms are successfully finding demand in global markets, with goods producers showing a particularly strong export performance.
However, this growth comes alongside rising pressure on company margins. Businesses reported an increase in input costs during July, and they have been passing these higher expenses on to customers through increased output charges. For investors, the ability of companies to maintain profit margins while facing these cost pressures will be a key factor to monitor in the upcoming quarterly results. The market will also track whether domestic demand stabilizes or if the cooling trend seen in the services sector persists into the next quarter.