India’s manufacturing sector saw a notable improvement in February, as the seasonally adjusted HSBC India Manufacturing Purchasing Managers’ Index (PMI) rose to 56.9, the highest level in four months. This increase, according to S&P Global, was fueled by strong domestic demand and a surge in new orders, indicating a continued expansion in production volumes.

Strong Domestic Demand Fuels Growth

The rise in the PMI to 56.9 from 55.4 in January marks a significant turnaround for the manufacturing sector. Pranjul Bhandari, Chief India Economist at HSBC, noted that the acceleration in manufacturing activity in February was supported by stronger domestic orders. ‘India’s final manufacturing PMI reflected an acceleration in manufacturing activity in February. Output expanded at a faster rate for a second month, supported by stronger domestic orders,’ Bhandari said.

Manufacturers across the country reported that rising client requirements and effective marketing initiatives were key drivers behind the surge in new business. The pace of growth in new orders was historically elevated, marking the strongest increase since last October.

Export Orders Slow Down

Despite the positive developments in domestic demand, growth in new export orders continued to slow. This trend, which began in mid-2025, has been a concern for the sector, as it somewhat restricts employment creation in the manufacturing industry.

According to the report, external sales increased in some areas, with companies citing gains in Asia, Europe, the Middle East, and the United States. However, the growth in new export orders was the slowest in 17 months, with the rate of expansion broadly converging towards its long-run average.

Production and Cost Pressures

Output rose at the fastest pace in four months, surpassing its long-run average. Panel members attributed this growth to efficiency improvements, healthy underlying demand, rising new work intakes, and increased technology investments.

While cost pressures remained relatively mild, output charge inflation ticked higher and outpaced its long-run average. This suggests that while input costs have not surged, there is a gradual increase in the prices of finished goods.

The PMI is a key indicator derived from measures of new orders, output, employment, supplier delivery times, and stocks of purchases. It provides a thorough view of the manufacturing sector’s overall conditions.

With the manufacturing sector showing resilience in domestic demand, analysts are closely watching the impact of this growth on employment and investment in the coming months. The trend of slowing export orders remains a point of concern, but the overall picture suggests a positive trajectory for India’s manufacturing industry.