India's manufacturing sector recorded a seven-month high PMI of 55.1 in September, driven by strong export and domestic orders. Despite the rebound, companies are facing pressure from rising input costs and anticipation of interest rate hikes by the Reserve Bank of India.
India's manufacturing sector showed a clear turnaround in September 2026, with the HSBC India Manufacturing Purchasing Managers’ Index (PMI) rising to 55.1. This is a significant improvement from the 52.8 reading seen in August and marks the highest score in seven months. The index measures business activity, where any number above 50 indicates expansion.
The growth in September was supported by a strong increase in new business. Manufacturers reported a surge in orders from both domestic customers and overseas markets, including the US, Europe, Brazil, and the UAE. Key sectors leading this expansion included electronics, pharmaceuticals, textiles, and food products. As production ramped up to meet this demand, factory employment also increased at its fastest rate since May.
While the headline numbers signal health, manufacturers are grappling with rising expenses. The cost of key raw materials—specifically steel and electronic components—has increased, putting pressure on profit margins. Companies are struggling to decide how much of this higher cost can be passed on to customers without hurting sales volume. In previous months, some firms were able to raise prices, but there is growing concern that persistent inflation could eventually force buyers to pull back.
Adding to the uncertainty is the outlook on monetary policy. With food inflation and broader wholesale prices remaining at elevated levels, financial analysts and economists have started to shift their expectations regarding the Reserve Bank of India's (RBI) next moves. Market sentiment is increasingly bracing for a more hawkish approach, with some projections suggesting that the central bank might begin increasing the repo rate as early as October 2026 to bring inflation under control.
If the RBI does decide to raise interest rates, it would increase the cost of borrowing for companies. This could be particularly challenging for the manufacturing sector, which often relies on credit to fund operations and expansion. For now, while order books look healthy, the primary monitorable for investors will be whether companies can protect their profit margins in the face of rising input costs and a potential tightening of credit conditions in the coming months.