Factory activity rises to a 14-month high of 58.4 in June

The quarterly outlook for manufacturing appears positive, with the average PMI reading for the June quarter rising to 58.1 from 57.4 in the January-March period, signalling sustained momentum in factory output and domestic demand.

The uptick comes even as India navigates a third consecutive month of higher US tariffs, underscoring the sector’s resilience amid external challenges.

"Growth of new export orders gained considerable momentum in June. The rate of expansion was the third highest since data collection started in March 2005. Firms noted strengthening demand from across the globe, with the US mentioned more frequently," HSBC noted.

The new orders also boosted employment, which also rose at a record pace. On the inflation front, manufacturers were better placed as well, with price inflation falling to a four month low.

Pricing power and demand buoyancy helped companies push some of the cost to consumers.

However, the picture is muted on the industrial output front. According to the Index of Industrial Production (IIP), overall industrial activity dipped to a nine-month low of 1.2 percent in May, primarily due to heavy rainfall disrupting electricity generation and mining operations.

Within IIP components, capital goods and construction-related industries remained on the growth path but consumer durables and non-durables, key indicators of demand, contracted in May, indicating stress in the segment.

"The outlook for the Indian manufacturing sector remained positive in June. That said, uncertainties surrounding competition, inflation and changes in consumer preferences weighed on sentiment," HSBC noted.

With these contrasting trends, India’s overall economic growth in the first quarter of FY26 is expected to moderate, compared to the strong 7.4 percent in the final quarter of FY25.