India's Factory Growth Eases in October, but Export Orders Hit a Six-Month HighIndia's Factories Slow, Export Orders Jump

India's factories kept growing in October, but at a slightly slower pace, as demand at home cooled while orders from overseas picked up strongly.

The HSBC India Manufacturing Purchasing Managers' Index (PMI) fell to 54.7 in October from 55.1 in September, according to the final survey results. An earlier flash estimate had put the reading at 54.9. A reading above 50 indicates that activity is expanding; below 50, that it is contracting. October's figure means Indian manufacturing has now grown for more than five years without a break, but at a more moderate pace than in September.

What the survey shows

The PMI is compiled from monthly questionnaires sent to purchasing managers at several hundred manufacturing companies. They report whether output, new orders, employment, prices and stocks have risen, fallen or stayed the same compared with the previous month. Because it is published quickly, the PMI is one of the earliest indicators of how an economy is doing.

In October, growth in both new orders and output moderated from September, when new orders had risen at their fastest pace in seven months. September's reading had itself marked a rebound from 52.8 in August.

Employment rose only modestly. Companies continued to build up stocks: inventories of finished goods rose at what the survey described as an unprecedented pace, and stocks of purchased inputs reached an eight-month high. That may reflect firms preparing for future sales, or goods that have been produced faster than they are being sold — the coming months will show which.

Exports are the bright spot

The strongest part of the report came from abroad. New export orders grew at their fastest rate in six months. Pranjul Bhandari, chief India economist at HSBC, said strong international demand had driven the pick-up in export orders.

That is notable at a time when demand in the United States and Europe is under pressure from high inflation and rising interest rates. One possible explanation is that buyers around the world are diversifying their supply chains, giving more business to Indian manufacturers. Another is that Indian products have become more competitive on price — a point supported by the survey's findings on inflation.

Price pressures ease

Input cost inflation — the rate at which manufacturers' own costs are rising — eased to its lowest level since February. And the rate at which factories raised their selling prices slowed to its weakest in nearly four years.

That stands out against the global backdrop. Energy prices have been pushed higher by the conflict in the Middle East, and inflation has risen in the United States, Europe and parts of Asia, including neighbouring Sri Lanka. Indian manufacturers, according to the survey, have so far been able to hold their own costs and prices in check, which helps keep Indian goods competitive abroad and eases pressure on consumers at home.

A note of caution

Business confidence weakened in October and remained below its long-run average. Firms asked about their expectations for output over the coming year were less optimistic than usual. Together with the slowdown in domestic orders, that suggests manufacturers are wary about how long the current pace of growth can last.

Analysts will also watch whether the rapid build-up of finished-goods inventories reflects confidence or caution. Companies that produce more than they sell eventually have to slow production, which could weigh on growth and hiring in the months ahead.

Why inventories matter

The rapid build-up of stocks is one of the more unusual findings in this month's survey. Manufacturers build inventories for different reasons. Some do it because they expect strong sales and want to be ready to fill orders quickly. Others end up with unsold goods because demand has fallen short of what they planned for.

Which explanation fits India now matters for the months ahead. If companies are stocking up ahead of expected export orders, the build-up is a sign of confidence. If finished goods are piling up because buyers at home are spending less, factories may have to cut production, which would show up in weaker PMI readings and slower hiring. The fact that domestic orders softened while export orders strengthened suggests both forces may be at work.

Why it matters for the region

India is the largest economy in South Asia, and the health of its factories matters well beyond its borders. Its manufacturers buy materials and components from neighbouring countries and sell finished goods to them.

For Sri Lanka, the link is growing. India has become Sri Lanka's second-largest export market, ahead of the United Kingdom, with Sri Lankan exports to India rising 12.3% in the first nine months of 2026 to almost 890 million dollars, according to the Export Development Board. Strong Indian industrial demand supports that trade.

More broadly, India's ambition to become a manufacturing hub to rival China has been a central theme of its economic policy for more than a decade. Surveys such as the PMI offer a month-by-month view of whether that ambition is being realised on the factory floor.

Reading the PMI

A PMI reading of 54.7 indicates solid expansion. The index measures the breadth of change rather than its size: it shows how many companies report improvement compared with deterioration, not by how much output has grown. That is why it is best read alongside official data on industrial production and exports, which arrive later but measure volumes directly.

The direction of change also matters. A reading that is falling but still above 50, as in October, means growth continues but is losing some momentum.

What to watch

The next flash PMI for November is due in the second half of the month. Investors will look for whether export strength persists, whether domestic orders recover, and whether the easing of price pressures continues despite high world energy prices. Official figures on India's industrial production and trade will provide a fuller picture.