Manufacturing PMI rises to 59.1 in July, but Business Confidence is at Its Lowest in 3 Years

Friday, August 1: India’s manufacturing sector experienced a significant uptick in July 2025, reaching a 16-month high. This robust performance was primarily fuelled by strong output and a sharp increase in new orders, as reported by the latest HSBC India Manufacturing Purchasing Managers’ Index (PMI).

However, this positive production trend was notably tempered by a decline in business confidence, which now stands at its lowest point in three years.

Understanding the PMI

The Purchasing Managers’ Index (PMI) is a key economic indicator, providing insights into the prevailing conditions in the manufacturing sector. Compiled by S&P Global, it is based on a monthly survey of purchasing managers across various manufacturing companies. A PMI reading above 50 signifies an expansion in the manufacturing sector compared to the previous month, while a reading below 50 indicates contraction. The index captures changes in new orders, output, employment, supplier delivery times, and stocks of purchases, offering a comprehensive snapshot of economic health.

PMI Climbs to 59.1 in July

The seasonally adjusted HSBC India Manufacturing PMI climbed to 59.1 in July, an increase from 58.4 in June, marking the highest reading since March 2024. This sustained expansion, following readings of 57.6 in May and 58.2 in April, indicates a robust and accelerating growth trajectory for the Indian manufacturing sector as it entered the second quarter of the fiscal year. A reading consistently above 50, and particularly nearing 60, points to very strong growth, showcasing the sector’s underlying resilience and dynamism.

Surge in New Orders and Output

The significant uptick in July’s PMI was largely attributed to a sharp and accelerated expansion in new orders. Survey respondents frequently linked this surge to robust demand conditions prevalent in the market and the efficacy of their marketing strategies.

Consequently, total sales recorded their fastest pace of growth in nearly five years, while production growth also reached a 15-month high, considerably outpacing the long-run average trend. To meet this heightened demand, companies proportionally increased their input purchases, although the pace of these purchases was marginally slower than that observed in June. Interestingly, inventories of finished goods continued to decline, suggesting that firms were actively utilising existing stock to fulfil the rising order volumes.

Inflation and Competition Weigh on Business Sentiment

Despite the impressive operational metrics and strong demand, business confidence among manufacturers surprisingly fell to its lowest point since mid-2022. This paradox of strong current performance juxtaposed with a cautious future outlook stemmed from manufacturers’ pronounced concerns over persistent inflationary pressures and increasing competition within the market.

This subdued sentiment also translated into a slowdown in job creation, with hiring activity in July registering its weakest level since November 2024. While input cost inflation picked up only mildly, the rate at which selling prices rose surpassed the historical average, contributing to the cautious disposition among manufacturers. This disconnect between current output and future confidence often signals concerns about profit margins and investment outlook amidst rising costs and market saturation.

Global Tensions Add to Uncertainty

The broader global landscape also played a role in dampening manufacturers’ confidence. Geopolitical events, specifically the escalation of hostilities in West Asia during June, involving Israel and Iran, contributed significantly to global uncertainty. Although a temporary ceasefire was brokered by the United States, ongoing threats of cyberattacks and the persistent regional instability ensured that overall business sentiment remained subdued, reflecting the interconnectedness of global markets and supply chains.

Future Outlook

While India’s manufacturing sector undeniably displayed strong momentum in terms of both output and demand as it commenced the second quarter of FY26, the softening business sentiment and prevailing external uncertainties pose notable risks to sustaining this growth trajectory.

The July PMI reading suggests an inherent resilience within the sector, yet it underscores the critical need for policymakers and businesses alike to closely monitor inflationary pressures and evolving geopolitical developments. Proactive measures in these areas will be crucial to ensure the continued expansion and stability of the manufacturing sector. The Reserve Bank of India (RBI), for instance, will likely keep a close watch on these inflation figures and overall economic activity while formulating its monetary policy decisions.

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