HSBC Flash PMI Shows Cooling Momentum in India’s Economy

India’s private sector growth continued to expand in May 2026, but fresh economic data suggests that the recovery may be losing momentum. According to the latest HSBC Flash Purchasing Managers’ Index (PMI) survey released by S&P Global, growth across manufacturing and services sectors remained positive but weakened slightly compared to April.

The data indicates that softer demand conditions, slowing export growth, rising input costs and global uncertainties are beginning to weigh on business activity.

HSBC Flash India Composite PMI Output Index

The HSBC Flash India Composite PMI Output Index stood at 58.1 in May, marginally lower than April’s 58.2. Although the reading remains well above the neutral 50 mark—which signals expansion—it suggests that the rebound seen after March’s slowdown has not accelerated further.

Services Sector Remains Resilient

Slight Improvement in Services Activity

India’s services sector continued to perform relatively well during May. The Services PMI Business Activity Index edged up slightly to 58.9 from 58.8 in April, reflecting continued strength in consumer-facing and business services.

However, the modest improvement in services was offset by slower growth in manufacturing output and weaker new business inflows across the broader private sector.

Economists note that India’s services sector has remained one of the strongest contributors to overall economic activity in recent years, supported by domestic consumption, digital services growth and rising urban demand.

Manufacturing Activity Loses Pace

Factory Output and Orders Slow Down

The manufacturing sector, which had shown stronger recovery momentum in April, witnessed moderation in May.

The Manufacturing PMI Output Index declined to 56.6 from 56.9, while the headline Manufacturing PMI slipped from 54.7 to 54.3.

Although these figures still indicate expansion, the pace of growth weakened noticeably.

One of the biggest concerns in the latest data was the slowdown in new orders. According to the survey, manufacturers recorded the second-weakest pace of new business growth in nearly four years.

Businesses cited multiple challenges affecting sales and demand, including:

• Competitive pressures.
• Weak domestic demand.
• Travel disruptions.
• Geopolitical uncertainties linked to the West Asia conflict.

Export Demand Weakens

International Sales See Slowest Growth in 19 Months

India’s export demand also softened significantly in May.

New export orders across the private sector expanded at the slowest pace in 19 months. Manufacturers recorded their second-slowest increase in international sales since September 2024, with only February 2026 showing weaker growth.

Global economic uncertainty, supply chain disruptions and geopolitical tensions continue to impact international trade conditions.

“Manufacturing activity eased marginally as the rates of expansion in output and new orders moderated, while growth of new export orders softened markedly. Yet, the Manufacturing PMI remained broadly in line with its long-run average, supported by continued inventory building,” said Pranjul Bhandari.

Rising Input Costs Add Pressure

Inflationary Concerns Continue

Even as demand growth moderated, businesses faced increasing cost pressures during May.

Input price inflation at the composite level rose to its second-highest level in nearly three years. Manufacturing companies reported the sharpest rise in input costs since July 2022.

Firms highlighted rising prices for:

• Energy.
• Fuel.
• Food.
• Gas.
• Iron.
• Leather.
• Oil.
• Plastics.
• Rubber.
• Steel.
• Transportation.

Despite these higher expenses, many companies avoided fully passing on costs to customers due to concerns over weakening demand.

As a result, selling prices increased at the slowest pace since January, indicating that businesses are absorbing a portion of the cost burden to remain competitive.

Employment and Business Confidence Remain Stable

Hiring Continues Despite Slower Growth

The survey showed limited signs of capacity pressures, with outstanding business volumes slipping slightly below the neutral 50 mark.

However, hiring activity remained positive.

The services sector recorded its fastest pace of employment growth in nearly one year, while manufacturing job creation softened slightly.

Business confidence also stayed above its long-run average, though it eased to a three-month low as firms remained cautious about future economic conditions.

Inventory Build-Up Signals Caution

Manufacturers Continue Stock Accumulation

One of the notable trends in the May data was continued inventory accumulation by manufacturers.

Buying activity and stocks of purchases rose at the fastest pace in three months. Meanwhile, inventories of finished goods increased for the second consecutive month.

Although the increase remained moderate, it represented the strongest rise in finished goods inventories in 11 years.

Economists believe this stock build-up reflects caution among businesses as they prepare for uncertain market conditions and potential supply disruptions.

Broader Economic Context

India’s Growth Story Faces Global Challenges

India continues to remain one of the world’s fastest-growing major economies, supported by infrastructure spending, strong domestic consumption and expanding services activity.

However, economists warn that:

• Slower global demand.
• Elevated inflation.
• Geopolitical instability.
• Export weakness.
• Higher raw material costs.

could create near-term challenges for businesses.

The latest PMI data suggests that while India’s economy remains in expansion territory, the pace of recovery is becoming more uneven.

Conclusion

India’s private sector continued to expand in May 2026, but the latest PMI data indicates that growth momentum may be slowing. Softer demand conditions, weaker export growth and rising input costs are creating challenges for both manufacturing and services businesses.

Although the economy remains in positive territory, companies are showing increasing caution through slower hiring, restrained pricing strategies and rising inventory levels. The coming months will be crucial in determining whether domestic demand and improving global conditions can help restore stronger momentum to India’s economic recovery.