Business activity in India’s manufacturing and services industries softened as companies grappled with subdued demand, increased competition and inflationary pressures.
The seasonally adjusted HSBC India Services Purchasing Managers' Index (PMI) Business Activity Index hit an 11-month low of 58 in December, falling from 59.8 in November. With slower new work orders and easing output, companies refrained from recruiting additional staff.
Plus, operating expenses rose, with cost pressures reportedly stemming from building items, chemicals, medical supplies, salaries, vegetables and office maintenance fees.
“Anecdotal evidence suggested that growth was constrained by a greater presence of alternative providers and cheaper services offered elsewhere,” the services PMI survey report said. So, despite elevated costs, fewer than 3% of services companies hiked their fees.
In the manufacturing sector too, there were increased competitive pressures and subdued sales of specific items, severely hurting intakes of new work.
The seasonally adjusted headline HSBC India Manufacturing PMI slid to a two-year low of 55 in December from 56.6 in November. A part of the slowdown in sales was due to lower international orders.
PMI’s new export orders sub-index rose at its slowest pace in 14 months. As a fallout of US tariffs, Indian manufacturers are diversifying exports to other regions, but the pain may continue.
Nomura’s leading index of Asia ex-Japan’s aggregate exports (NELI) ticked down to 95.5 in January. NELI has a three-month lead time. This decline primarily reflects a slowdown in China’s imports from Asia, as well as a deterioration in manufacturing sentiment in China and the US, it said. Nomura Global Markets Research cautioned that Asia’s export growth could moderate slightly into Q1 of 2026.
Amid this, Indian manufacturers saw greater prices for bamboo, chemicals, glass, leather and packaging. However, cost inflation was little changed in December from November, with the index reading below its long-run average and among the lowest in 2025. Output prices increased at a softer pace, one that was the least pronounced in nine months, said the survey report.
Composite index
The combined deterioration in both these sectors pushed the Composite PMI Output Index to 57.8 in December from 59.7 in November. Composite PMI indices are weighted averages of comparable manufacturing and services PMI indices.
In this backdrop, companies in both the sectors are far less confident. Indian service providers are worried by heightened market uncertainty and exchange rate movements, while some manufacturers were concerned about competitive pressures. The composite index tracking companies’ business optimism slipped to 41-month low in December. For service providers, the respective index fell almost nine points below its long-run average.
However, wide-held expectations are that policy support on both the monetary and fiscal fronts would aid a revival in domestic demand ahead. Given all this, the services sector is seen as better placed as it is dependent on domestic demand and largely insulated from tariff pressures, unlike manufacturers.
As per Gaura Sen Gupta, chief economist at IDFC First Bank, other high-frequency indicators such as production activity measured by freight transportation parameters and the Index of Industrial Production point to broad-based growth in the December quarter (Q3FY26). Robust monsoon performance and a pick-up in rural wage growth are expected to buoy rural demand revival.
“The goods and services tax cut has provided a much-needed boost to urban consumption in Q3FY26. Construction activity, which was expected to weaken due to moderation in government capital expenditure, has also held up in Q3,” she added.
Sen Gupta expects Q3 and FY26 GDP growth to be 7.4% and 7.6%, respectively.