India's private sector growth slows to over three-year low in July as demand weakens: HSBC Flash PMI

India's private sector activity expanded at its slowest pace in more than three years in July as growth in output and new business moderated sharply amid weaker demand, rising competitive pressures, and supply-side disruptions, according to the HSBC Flash Purchasing Managers' Index (PMI).

The HSBC Flash India Composite PMI Output Index fell to 54.3 in July from 57.1 in June, marking the slowest pace of expansion since March 2022. A reading above 50 indicates expansion in business activity.

The survey attributed the slowdown to increasingly challenging market conditions, heightened competition, order cancellations, fewer client enquiries and shortages of key raw materials. Although new orders continued to increase at the start of the second quarter of FY27, the pace of growth slowed to its weakest level in nearly four-and-a-half years and remained moderate by historical standards.

Services slow sharply; manufacturing shows resilience

The moderation was driven primarily by the services sector, where growth in both output and new orders eased to a 53-month low. Manufacturing, however, regained some momentum after losing steam in previous months.

Despite the softer domestic demand, export orders strengthened across both manufacturing and services. Goods producers outperformed service providers, with manufacturing export orders recording a notable improvement. At the composite level, growth in international sales was the strongest since March.

Cost pressures intensify

The survey showed a renewed uptick in inflationary pressures during July. Input costs rose at a faster pace than in June, driven by higher fuel, labour, raw material and transportation expenses, although overall cost inflation remained below its long-run average.

Businesses responded by raising selling prices at the fastest pace since April, as firms sought to protect margins amid rising input costs. Both manufacturers and service providers reported stronger output price inflation.

Hiring continues despite softer demand

Employment across India's private sector continued to expand for a seventh consecutive month. Hiring accelerated marginally from June, though the pace remained modest. Service providers added jobs at a faster rate than manufacturers.

The survey also indicated signs of easing capacity pressures. Outstanding business volumes declined for the first time in three months, reflecting backlog clearances in the services sector. In contrast, unfinished work continued to rise among manufacturers.

Business sentiment weakened to a six-month low in July and remained below its long-term average. Confidence improved among manufacturers but softened in the services sector.

Companies remained optimistic about the year ahead, expecting stronger underlying demand and improved market conditions over the next 12 months.

Manufacturing PMI eases marginally

The HSBC Flash India Manufacturing PMI edged down to 53.9 in July from 54.2 in June, signalling a modest improvement in factory conditions. Manufacturers increased purchasing activity and built up inventories of both inputs and finished goods, supported by improved supplier performance.

Pranjul Bhandari, Chief India Economist at HSBC, said renewed geopolitical tensions had prompted firms to strengthen inventory buffers. "Renewed tensions in the Middle East have once again resulted in firms building buffers to manage the uncertainties around the longevity of the supply-side shock. Finished goods and input inventories increased alongside a pick-up in purchasing volumes. Both output and new export orders rose, even as the overall manufacturing growth eased slightly. Price pressures firmed, with output charge inflation gathering pace and signalling a renewed push to protect margins," she added.