India's manufacturing PMI falls to 57.8 in June

India's PMI numbers, both manufacturing and services, have been hitting multi-year highs in recent months.

India's manufacturing sector activity for June came in at 57.8, lower than May's 31-month high of 58.7, data released on July 3 showed.

At 57.8, the S&P Global Purchasing Managers' Index (PMI) is higher than the key level of 50, which indicates expansion in activity, for the 24th consecutive month. A sub-50 print is a sign of contraction.

"June's PMI results again showed robust demand for Indian-made products, both in the domestic and international markets. Positive client interest continued to support the manufacturing industry, driving growth of output, employment, quantities of purchases and input stocks," said Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence.

"These positive developments instilled greater confidence into manufacturers regarding growth prospects, boding well for business investment and the labour market."

The expansion in manufacturing activity in June was underpinned by a jump in new work orders, which increased at one of the strongest rates since February 2021. International orders also rose, though at a slower pace than in the previous month.

To meet demand, production was increased at one of the fastest rates over the past one-and-half years. With capacity pressures remaining mild, manufacturers employed additional workers of a magnitude similar to May.

On the price front, the robust demand allowed manufacturers to increase selling price at the strongest rate in 13 months even though input prices increased only mildly "by historic standards and among the lowest seen over the past three years", S&P Global said.

"Presented with buoyant demand, manufacturers seized the opportunity to adjust their pricing strategies. The latest increase in output charges reflected firms' ability to pass on higher cost burdens to customers
while maintaining a competitive edge," De Lima commented.

The price developments will be of concern to the Reserve Bank of India and the Monetary Policy Committee, which has left the policy repo rate unchanged at 6.5 percent, so far, in 2023-24. While the rate-setting panel has stressed that it stood ready to take further rate hikes if needed, markets are getting ready to see the first rate cuts in nearly three years in early 2024.

The MPC is scheduled to next meet on August 8-10. Before that, headline retail inflation data for June will be released on July 12. Economists predict Consumer Price Index (CPI) inflation will edge up to 4.5-4.6 percent in June from a 25-month low of 4.25 percent in May.

"The Indian economy is enjoying a 'Goldilocks' phase, with growth momentum holding up for now, while inflation has moderated to near the mandated target of 4 percent, and the rupee remains stable against the backdrop of an improved current account deficit outlook and robust equity markets. But various risks on the horizon could pose a threat to this equilibrium," said Kaushik Das, Deutsche Bank's chief economist for India and South Asia.