India's private sector growth eased marginally in May 2026, with the HSBC Flash Composite PMI declining to 58.1 from 58.2 in April. The latest data shows that while growth remained well above the 50-mark that separates growth from contraction, the pace of expansion slowed during the month. According to Reuters reports, the deceleration was primarily centred in manufacturing, where new orders expanded at one of the slowest rates in nearly four years and production growth eased to its second-weakest level since mid-2022. The 58.1 reading was higher than a Reuters poll median forecast for 58.0, indicating that while growth moderated, it remained above market expectations. This moderation reflects weaker factory output and softer export demand weighing on overall momentum, though services sector resilience helped support overall activity levels. As per HSBC, the flash reading suggests sentiment remains positive but uneven across sectors, with growth in new orders, exports, employment and business activity easing during the month.
The manufacturing sector faced significant headwinds in May, with the HSBC Flash India Manufacturing PMI declining to 54.3 from 54.7 in April. This marked one of the weakest improvements in manufacturing conditions in nearly four years, as both output and new orders expanded at a slower pace. Factory output rose at a slower pace—marking the second-weakest expansion since mid-2022, after March's reading of 55.7, with the HSBC Flash India Manufacturing Output Index forecast to ease to 56.6 from 56.9 in April. New export orders across the private economy grew at their weakest pace in 19 months, with goods producers recording one of the slowest gains in international sales since late 2024. Survey respondents noted that competitive pressures, weaker demand, travel disruptions and the war in West Asia dampened international demand, with manufacturers pointing to these factors as weighing on new business. According to HSBC chief India economist Pranjul Bhandari, manufacturing activity eased marginally as rates of expansion in output and new orders moderated, with growth of new export orders softening markedly.
The services sector demonstrated stronger performance than manufacturing in May, with the Services Business Activity Index edging up to 58.9 from 58.8 in April. This outpacing of manufacturing reflects the services sector's continued resilience and ability to maintain growth momentum despite broader economic challenges. Service providers demonstrated strong hiring activity, adding staff at the fastest pace in nearly a year, indicating robust demand for service-oriented businesses and positive business expansion plans. The services sector's resilience helped offset some of the manufacturing sector's challenges, with hiring activity in the private sector also increasing as employment conditions remained broadly positive. This sectoral divergence highlights the different dynamics affecting India's economy, with services continuing to drive overall growth while manufacturing faces significant headwinds. As per HSBC, employment trends diverged across sectors, with services firms adding staff at the fastest pace in nearly a year while hiring in manufacturing softened from April, though job creation remained solid in both segments.
Businesses faced significant cost pressures in May, with input prices increasing at the fastest rate since July 2022, primarily due to higher raw material costs. According to S&P Global data, the composite input price inflation index rose to its second-highest level in nearly three years in May, driven largely by manufacturers who reported sharply higher costs for energy, fuel, gas, metals, plastics, rubber and transport. For the manufacturing sector specifically, input cost inflation was the steepest since July 2022. Despite these challenges, output price inflation eased to its weakest pace since January, well below the rate of input price inflation—a sign that competitive conditions are limiting pricing power. Companies attempted to pass on some of these costs to customers but held back considerably, reflecting the competitive pressures in the current market environment. As per HSBC, cost pressures intensified with input prices rising at the sharpest rate since July 2022, with firms reporting higher prices for energy, fuel, gas, metals, plastics, rubber and transport.
Business confidence, though retreating to a three-month low, remained well above its long-run average, indicating underlying optimism about future prospects. According to HSBC data, overall business confidence remained strongly positive, with companies staying optimistic about future growth due to better marketing efforts, competitive pricing strategies, and expectations of improved market conditions in coming months. The employment landscape showed mixed signals across sectors during May, with service providers adding staff at the fastest rate in nearly a year while job creation at manufacturers softened somewhat from April. This shift in employment patterns between manufacturing and services sectors reflects the different demand conditions affecting these sectors, with services continuing to demonstrate strong hiring activity while manufacturing faces employment pressures. Inventory building activity also strengthened, with manufacturers increasing purchasing at the fastest pace in three months and stocks of inputs rising as suppliers met delivery timelines. Finished goods inventories climbed for a second straight month, marking the strongest build-up in 11 years, according to the survey.
