India’s private sector activity expanded at its slowest pace in more than four years in July as a sharp moderation in the services sector weighed on overall business activity, even as manufacturing output remained resilient, export demand strengthened and inflationary pressures intensified, according to the HSBC Flash India PMI released on Friday.
The HSBC Flash India Composite PMI Output Index fell to 54.3 in July from 57.1 in June, signalling the slowest expansion in private sector activity since March 2022. While the index remained above the 50-mark separating expansion from contraction, it pointed to a significant loss of momentum at the start of the second quarter of FY27.
Services slowdown
The moderation was led by the services sector. The HSBC Flash India Services PMI Business Activity Index dropped to 53.1 from 57.4 in June, its weakest reading in 53 months. Survey participants cited increasingly , competitive pressures, reduced client enquiries, order cancellations and shortages of key raw materials as factors weighing on growth.
Manufacturing presented a mixed picture. The headline HSBC Flash India Manufacturing PMI eased marginally to 53.9 in July from 54.2 in June, indicating a slower improvement in overall factory conditions. However, the Manufacturing PMI Output Index rose to 57.0 from 56.3, suggesting factory production strengthened during the month.
Although new business continued to expand, the pace of growth slowed to its weakest in nearly four-and-a-half years, reflecting softer domestic demand. In contrast, international demand remained robust. New export orders accelerated across both and services, with goods producers recording particularly strong gains. At the composite level, export sales expanded at the fastest pace since September 2014.
Price pressures
The survey also pointed to renewed inflationary pressures. Input costs rose at a faster pace than in June, driven by higher fuel, labour, material and transportation costs. Companies responded by increasing selling prices, pushing output charge inflation to its strongest level since April as firms sought to protect profit margins.
Employment expanded for the seventh consecutive month. Although the pace of hiring improved from June, job creation remained modest, with service providers hiring at a faster pace than manufacturers.
Despite continued recruitment, the survey indicated signs of spare capacity. Outstanding business volumes declined at the composite level for the first time in three months as service providers cleared backlogs, while unfinished work continued to rise among manufacturers.
Export resilience
Business confidence weakened during July, slipping to a six-month low and remaining below its long-run average. Optimism improved among manufacturers but softened in the , with firms expecting better market conditions and stronger underlying demand over the next 12 months.
Manufacturers also stepped up purchasing activity during the month. Improved supplier performance helped firms build inventories of inputs, while stocks of finished goods increased after declining in June, reflecting efforts to strengthen inventories amid uncertainty.
Commenting on the survey, Pranjul Bhandari, chief India economist at HSBC, said renewed tensions in West Asia prompted firms to build inventory buffers to manage supply-side risks.
“Renewed tensions in the Middle East have once again resulted in firms building buffers to manage the uncertainties around the longevity of the supply-side shock. Finished goods and input inventories increased alongside a pick-up in purchasing volumes. Both output and new export orders rose, even as the overall manufacturing growth eased slightly. firmed, with output charge inflation gathering pace and signalling a renewed push to protect margins,” she said.
The flash PMI survey was conducted between 8 and 21 July 2026 and covers around 75-85% of the responses used for the final monthly PMI release.