India's private sector activity bounces back in January on strong demand

Private Sector Rebounds with Strong PMI Gains

India's private sector has kicked off the new year on a high note, shaking off the slowdown from late last year. The HSBC Flash India Composite Output Index jumped to 59.5 in January, up from an 11-month low of 57.8 in December. This marks the fastest growth pace in two months, signaling expansion since the index stays well above the 50-point threshold that divides growth from contraction—now for 54 straight months.

The uptick reflects renewed vigor across key areas, particularly as new orders poured in at a quicker rate. Businesses reported stronger demand conditions, fueled by aggressive marketing pushes and favorable market dynamics. Manufacturers led the charge with their PMI rising to 56.8 from 55 in December, while the services sector's Business Activity Index climbed to 59.3 from 58. Both sectors saw output accelerate, though manufacturing showed a sharper rebound.

This recovery comes after December's dip, when activity had softened to levels not seen in nearly a year. Now, with sales picking up, companies are optimistic, citing efficiency improvements, steady domestic spending, and even helpful currency movements as boosters. The data, drawn from surveys of around 400 manufacturers and 400 service providers, paints a picture of broad-based momentum entering 2026.

Demand Surge Drives New Orders and Hiring

At the heart of January's bounce-back is a clear surge in demand. New business inflows grew faster than before, with overall sales rising thanks to heightened client activity and targeted marketing efforts. Manufacturers noted an especially quick upturn in orders, outpacing services, but both areas benefited from the trend. Domestic demand appears to be the star performer, helping firms recover from year-end sluggishness.

Hiring, which had stalled in December, resumed modestly this month. Companies added staff at junior and mid-levels to match rising workloads, aligning resources with expanding needs. This job creation, while not explosive, fits the typical trend for the sector and hints at sustained confidence. Purchasing activity also ramped up, especially among goods producers, as firms stocked up on materials to meet orders.

Business sentiment hit a three-month high, with executives looking ahead positively. They pointed to ongoing demand strength, better operational efficiencies, and supportive factors like allocated budgets for promotion. These views underscore a sector ready to build on the January gains.

"Growth, as signalled by the HSBC flash PMI, picked up pace for both manufacturing and services. Despite the rise in the manufacturing PMI, January’s figure remained below the 2025 average, but new orders rose more rapidly, led by a faster pick up in domestic orders," said Pranjul Bhandari, chief India economist at HSBC.

Cost Pressures Rise Amid Positive Outlook

Not everything is smooth sailing, though. Input costs climbed at the quickest rate in four months, hitting services harder than manufacturing. Firms passed on some of these hikes through output charges, which rose across both sectors at the fastest pace in three months. Still, this hasn't dampened the overall mood, as stronger revenues seem to cushion the blow.

The flash estimates come from S&P Global's surveys, with full manufacturing data due February 2 and services plus composite on February 4. These early numbers suggest India's private sector, a vital growth engine, is regaining steam despite global headwinds like trade tensions or commodity swings. The balanced expansion—spanning goods and services—eases worries about over-reliance on one area.

In essence, January's data offers reassurance that domestic momentum endures. Firms are investing in capacity and marketing, betting on continued consumer and business spending. While challenges like rising costs linger, the rebound points to resilience, potentially setting a solid tone for the year.

Wrapping up, India's private sector rebounded sharply in January with the Composite PMI at 59.5, powered by demand, new orders, and hiring restarts, even as costs edged up—heralding a promising start to 2026.