Strong factory output and rising demand drive growth, but inflationary pressures persist

India’s private sector activity staged a strong comeback in April, driven by a sharp acceleration in manufacturing output and new business inflows. According to the latest flash survey by S&P Global for HSBC, the Composite Purchasing Managers’ Index (PMI) rose to 58.3 from 57 in March—well above the 50-mark that separates expansion from contraction.

Manufacturing Sector Leads the Growth Engine

The manufacturing sector emerged as the key growth driver, with faster increases in production and new orders. The Flash Manufacturing PMI climbed to 55.9 in April from 53.9 in March, reflecting a strong rebound after recent weakness.

Companies reported improved demand conditions, higher capacity utilisation, and increased investments in technology. Export orders for manufacturers also grew at the fastest pace in nine months, indicating strengthening global demand for Indian goods.

Services Sector Maintains Steady Expansion

The services sector continued to expand, though at a relatively moderate pace. The Services PMI Business Activity Index edged up to 57.9 from 57.5 in March, supported by stable domestic demand.

However, export growth in services slowed to its weakest level in over a year, suggesting some softness in international markets, particularly amid ongoing geopolitical uncertainties.

New Orders and Demand Momentum Strengthen

Across the private sector, new business volumes increased at a faster pace in April, led primarily by manufacturing firms. Strong domestic demand, improved client confidence, and better market conditions contributed to the uptick.

Businesses also reported a rise in purchasing activity and inventory build-up, indicating optimism about future demand and efforts to safeguard against supply disruptions.

Input Cost Inflation Remains a Key Concern

Despite robust growth, cost pressures continued to weigh on businesses. Companies highlighted rising expenses related to fuel, gas, oil, and raw materials such as metals, chemicals, rubber, and food products.

The rate of input cost inflation remained among the highest levels seen in nearly three years. Although firms passed on part of the increased costs to customers through higher selling prices, the pace of output price increases lagged behind input inflation, squeezing profit margins.

Firms Build Buffer Stocks Amid Global Uncertainty

The rebound follows a slowdown in March, which was influenced by disruptions linked to tensions in West Asia. In response, businesses are adopting precautionary measures such as building buffer inventories and increasing procurement to manage potential supply shocks.

According to Pranjul Bhandari, companies are actively adjusting strategies to maintain operational stability while navigating uncertain global conditions.

Employment Growth Gains Momentum

Hiring activity across India’s private sector picked up pace, reaching a ten-month high in April. The increase in employment was driven by rising workloads, expansion plans, and a positive outlook for future business activity.

Manufacturing firms led job creation, reflecting stronger production needs and scaling operations.

57 Months of Continuous Expansion Signals Resilience

India’s private sector has now remained in expansion territory for 57 consecutive months, underscoring the resilience of the economy despite global headwinds and domestic cost pressures.

The sustained growth trend highlights strong fundamentals, supported by consumption demand, industrial activity, and business confidence.

Outlook: Growth Momentum Strong, but Margins Under Watch

While the April PMI data signals strong economic momentum at the start of FY27, rising input costs and global uncertainties remain key risks.

Going forward, the trajectory of inflation, commodity prices, and external demand will play a crucial role in shaping business sentiment and profitability. Sustaining growth while managing cost pressures will be critical for India Inc. in the coming quarters.