HSBC India Business Outlook
Indian private sector companies tempered their growth projections for output and profitability to the lowest levels since October 2023, with the headline business activity net balance falling from +35% in February to +22% in June 2026. This represents the weakest level of positive sentiment in nearly three years, weighed down by global uncertainty and concerns about margin squeeze. Despite this, firms showed remarkable resilience in investment intentions, with capital expenditure and R&D budgets seeing upgraded allocations.
The survey revealed that output growth optimism faded across both manufacturing (+23% net balance) and services sectors (+22%), while profit growth confidence slipped to +15% - though this remained well above both the emerging market average (+5%) and global average (+9%). Employment growth expectations were revised down to +10% from +17% in February, driven by predictions of softer earning performances and rising cost pressures, though Indian job creation still appears strong relative to the global average.
The most significant divergence appeared in investment sentiment, where Indian companies displayed strong confidence with capex net balance rising from +17% to +19% and R&D net balance increasing from +5% to +12%, surpassing global averages in both categories. Anecdotal evidence cited tailwinds from new product launches, growing demand for digital transformation, AI-driven solutions, and expansion activities including new branches, equipment, software adoption, and geographic expansion.
On the inflation front, non-staff cost expectations rose to +9%, the highest since October 2024, though India's reading was among the lowest globally with only mainland China (+7%) and Russia (+3%) recording softer cost pressures. Staff cost expectations fell sharply to +12% while output price expectations moderated to +15%, reflecting a combination of softer hiring plans and intense competitive conditions that limited price pass-through abilities. Manufacturers showed higher price-setting plans (+23%) compared to service providers (+12%).
Businesses identified several challenges including expectations of higher costs for fuel, energy, raw materials, transportation and wages, coupled with intense competition and price-sensitive customers that would make cost pass-through difficult. Other concerns included predictions of softer market demand, volatile commodity and currency movements, changes in government rules or taxes, and pressures to adopt greener products and processes which require additional investment.
The survey data was collected from 10-26 June 2026 from a panel of approximately 800 Indian manufacturing and service sector companies, as part of a global survey covering 12 nations with comparable data. India's business optimism receded relative to pre-war readings along with nine other nations, strengthening only in Spain and the US during the same period.