India's business activity surges in June on strong demand, record export orders, PMI shows

India's private sector activity accelerated sharply in June, with the HSBC Flash Composite PMI rising to a 14-month high of 61.0, exceeding forecasts. This robust expansion was driven by surging domestic and international demand, leading to record export growth, particularly in manufacturing, and significant job creation, with manufacturing employment reaching a two-decade peak. While input cost inflation softened, allowing firms to limit price hikes, overall business confidence dipped to a two-year low, primarily due to tempered expectations within the services sector despite strong current performance.

Analysis

India's private sector activity accelerated sharply in June, with the HSBC Flash Composite PMI surging to a 14-month high of 61.0, significantly outpacing the 59.3 recorded in May and consensus forecasts. This expansion, the most robust in over a year, was broad-based, with the services activity index rising to 60.7 and the manufacturing PMI climbing to 58.4. The growth was primarily fueled by a surge in new orders driven by both domestic and international demand, with overall new export business reaching its highest level since data collection began in September 2014. This robust demand translated into a notable pickup in hiring, particularly within the manufacturing sector, where employment growth reached a peak not seen in over two decades. On the inflation front, input cost pressures eased to a 10-month low, allowing firms to moderate their price hikes. However, a significant divergence has emerged, as overall business confidence dropped to a two-year low, primarily due to tempered expectations among service providers, creating a disconnect between strong current performance and future outlook.

Key Decisions for Investors

• The robust PMI data, driven by record exports and strong domestic demand, supports a continued bullish stance on Indian equities, particularly within export-oriented manufacturing sectors benefiting from strong global demand.
• Given that input cost inflation has softened to a 10-month low, investors should monitor the Reserve Bank of India for potential interest rate cuts, which would likely benefit rate-sensitive sectors like financials and consumer discretionary.
• The notable decline in business confidence to a two-year low, despite strong current economic activity, represents a key risk factor; investors should watch for any leading indicators that this pessimism is beginning to impact investment and hiring decisions.