India’s manufacturing activity slowed to its weakest pace in two years in December, reflecting softer demand conditions and more cautious production strategies by firms, according to the latest survey by HSBC.
The seasonally adjusted HSBC India Manufacturing Purchasing Managers’ Index (PMI) fell to 55 in December from 56.6 in November. While remaining firmly in expansion territory above the neutral 50 mark, the reading signalled the slowest improvement in the sector’s health in two years.
Despite the moderation, analysts stressed that manufacturing activity remains relatively resilient. “Even with growth momentum easing, India’s manufacturing industry wrapped up 2025 in good shape,” said Pollyanna De Lima, economics associate director at S&P Global Market Intelligence. She added that a sharp rise in new business intakes could keep companies busy as the final quarter of the fiscal year unfolds, while subdued inflationary pressures may continue to support demand.
The survey, however, pointed to a continued weakening in export performance. Growth in new export orders softened further in December, with the share of companies reporting higher international sales falling to about half of the 2025 average.
Anecdotal evidence also suggested a narrowing of export destinations, largely limited to Asia, Europe and the West Asia. De Lima noted that relatively lower cost pressures in India compared with other manufacturing hubs could help firms use competitive pricing to attract new overseas business in the coming year.
Export Drag
On the domestic front, employment growth slowed to its weakest pace in the current 22-month phase of job creation. Purchasing activity also expanded at the slowest rate in two years, in line with the softer growth in output. Outstanding business volumes rose only marginally, with the relevant index hovering close to the neutral 50 mark, indicating a limited buildup of backlogs.
Inventory trends remained mixed. Input inventories rose sharply, while stocks of finished goods declined at one of the fastest rates seen in the past eight months, as manufacturers reportedly drew down inventories to meet current sales. The rise in stocks of purchases, meanwhile, was the weakest in two years amid cautious buying and greater use of existing materials.
Inventory Shifts & Price Stability
Cost pressures stayed muted in December. Input prices edged up due to higher costs for bamboo, chemicals, glass, leather and packaging, but inflation remained below its long-run average and among the lowest recorded in 2025. Output price inflation also eased to a nine-month low.
Looking ahead, manufacturers remain optimistic about higher output in 2026, though overall sentiment weakened to a near three-and-a-half-year low. While advertising, new product launches and supportive demand trends were cited as positives, concerns around competitive pressures and market uncertainty weighed on confidence.