Indian factory activity rebounds but business confidence slumps to 3-year low
This followed a slowdown in end-2025.
India's manufacturing sector regained momentum in January after a slowdown at the end of 2025, with production and new orders rising at faster rates, but business confidence plunged to its weakest level in three and a half years.
The HSBC India Manufacturing Purchasing Managers' Index climbed to 55.4 in January from a two-year low of 55.0 in December, indicating a stronger improvement in the health of the sector. The reading remained above its long-term average, with consumer goods manufacturers recording the strongest performance whilst capital goods showed the slowest improvement.
Production rose sharply and at a quicker pace than in December, with manufacturers citing buoyant demand, new business growth and technology investment as key drivers. New orders expanded at a faster rate after slowing in the previous month, supported by marketing efforts and strong demand from both domestic and international clients.
However, the main impetus came from the domestic market. Whilst export orders still increased, they did so at one of the weakest rates in 15 months. Firms that experienced growth cited greater demand from Asia, Australia, Canada, Europe and the Middle East.
Companies continued to hire additional staff in response to rising backlogs of unfinished work, with job creation reaching its quickest pace in three months, albeit remaining slight overall.
Purchasing activity rebounded strongly after falling to a two-year low in December, driven by greater production requirements and efforts to safeguard against shortages. Suppliers comfortably accommodated the strengthening demand, delivering materials more quickly than in the previous month.
Consequently, stocks of raw materials continued to expand at a marked rate, whilst finished goods inventories fell for a third consecutive month as orders were often fulfilled from warehouses.
On the pricing front, input costs rose at the fastest pace in four months, though the increase remained mild by historical standards. Companies reported paying more for chemicals, copper, iron, jute, paper, steel and transportation. Despite this, selling prices rose only modestly—at the weakest rate in nearly two years—as competitive pricing, improved efficiency, better cost management and market rivalry prevented firms from increasing their fees.
The sharp contrast came in forward-looking sentiment. Business confidence slumped to its lowest level since July 2022, with only 15 per cent of companies foreseeing output growth in the year ahead and 83 per cent forecasting no change.
Pranjul Bhandari, chief India economist at HSBC, said Indian manufacturing firms saw a rebound in January. "Input costs rose moderately, while the pace of growth in factory-gate prices eased, resulting in slight margin pressure for manufacturers," she noted. "Despite faster growth in new orders, business confidence remains muted, and expectations for future output have declined to their lowest level since July 2022."
