India's Factory Growth Cools to 54.2 in June as Demand and Exports Soften

India's factories expanded at a noticeably slower pace in June, according to a closely watched private survey that tracks manufacturing health every month. The HSBC India Manufacturing PMI fell to 54.2 from 55.0 in May, marking one of the weakest readings in the past four years.

A PMI reading above 50 means the sector is still growing, so factories are not shrinking. But the drop shows that the pace of growth has slowed considerably. Only March's reading, taken during the outbreak of tensions in West Asia, was weaker than June's.

The slowdown was driven mainly by capital goods producers, the companies that make machinery and equipment used by other industries. In contrast, makers of consumer goods and intermediate goods, which are used as inputs in further production, grew a bit faster. This suggests the loss of momentum isn't spread evenly across the economy.

Export demand also weakened noticeably. New orders from foreign buyers grew at their slowest pace since March 2023, partly because sales to some European markets softened. Economists say this points to demand cooling after an earlier boost linked to disruptions from the Middle East conflict, which had temporarily pushed some international orders toward Indian manufacturers.

On the positive side, cost pressures eased. Prices of inputs like raw materials rose at their slowest pace since February, even though costs for items such as chemicals, metals, and petroleum products stayed elevated. Because demand was softer, manufacturers were also more cautious about raising their own prices, keeping overall inflation pressures in check.

Companies responded to the slowdown by pulling back on purchasing raw materials and by reducing stockpiles of finished goods at the fastest rate in six months, effectively matching production more closely to actual demand. Hiring also slowed, growing at its weakest pace so far in 2026, though existing workloads remained stable, indicating factories weren't overwhelmed with unfinished orders.

Perhaps most striking was the drop in business confidence. The share of manufacturers expecting output to grow over the next year was cut in half compared to May, pushing overall optimism to its lowest level in five months. This suggests companies are bracing for a more uncertain period ahead.

Overall, while Indian manufacturing is still expanding and remains close to its long-term average pace, the details paint a picture of moderating momentum, both at home and abroad, as one temporary boost to demand fades.