India's manufacturing sector experienced a slowdown in December, with the HSBC Manufacturing Purchasing Managers' Index (PMI) dropping to 55.0 from 56.6 in November. This marks the weakest improvement in the sector in the last 38 months. Despite the decline, the index remains above 50, indicating continued expansion.
The deceleration in PMI reflects a softer increase in new orders and a slowdown in factory output. New orders grew at the slowest pace since December 2023, while factory output expanded at its weakest rate since October 2022. This moderation in sales was partly attributed to a softer expansion in international demand, with new export orders increasing at the slowest pace in 14 months. However, manufacturers who experienced growth cited improved demand from clients in Asia, Europe, and the Middle East as key drivers.
Weaker growth in new business led companies to be more cautious in their purchasing of raw materials, even though overall purchases rose. The increase in input buying was the least pronounced in two years. Employment also saw a marginal increase, reflecting sufficient staffing amid easing workloads. The pace of job creation was the lowest in 22 months.
Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence, noted that despite the slowdown, India's manufacturing sector concluded 2025 on a solid footing. She added that the sharp rise in new business intakes should keep companies busy heading into the final fiscal quarter, and the lack of major inflationary pressures could continue to support demand. Input cost inflation remained subdued, rising modestly, while output price inflation eased to a nine-month low.
Business confidence has softened to its lowest in nearly three-and-a-half years, with firms citing competitive pressures and market uncertainty, despite tailwinds from new products and advertising. Stocks of purchases increased at the slowest pace in two years, while finished goods inventories fell sharply as firms used existing stock to meet current demand.
The S&P Global India Manufacturing Purchasing Managers' Index is compiled from responses to questionnaires sent to purchasing managers in a panel of around 500 manufacturers. The PMI is a weighted average of five individual sub-components: New Orders (30%), Output (25%), Employment (20%), Suppliers’ Delivery Times (15%) and Stocks of Purchases (10%). A reading above 50 indicates an expansion of the manufacturing sector compared to the previous month, while a reading below 50 indicates a contraction; a reading of 50 indicates no change.
