Final data from a survey by Standard & Poor’s Global showed that India’s manufacturing sector expanded at its fastest pace in over 17 years, driven by strong growth in orders and production alongside robust demand conditions.

The HSBC manufacturing Purchasing Managers’ Index (PMI) rose to 59.3 points in August, up from 59.1 in July.

Any reading above 50 indicates sector growth, though the latest figure was slightly below the initial estimate of 59.8.

Production volumes grew at their fastest rate in nearly five years, linked to improved alignment of supply with demand.

New orders increased nearly as much as in July, which was the fastest in 57 months, supported by a rebound in demand and positive advertising.

Brangul Bhandari, Chief Economist at HSBC, said: “The manufacturing PMI hit a new record high in August, driven by rapid production expansion. The US tariff increase to 50% contributed to a slowdown in new export orders growth, as American buyers held back orders amid tariff uncertainty.”

On the other hand, domestic demand growth remained strong, helping to offset the tariff impact on the economy. The production sub-index rose at its fastest pace since late 2020, with improved supply-demand balance, and new orders continued to expand rapidly, maintaining July’s levels, driven by strong demand and successful advertising campaigns.

Meanwhile, new export orders grew at a slower pace, marking the weakest expansion in five months, but remained strong by historical standards, securing new business from clients in Asia, Europe, the Middle East, and the US.

Companies continued to increase their workforce for the 18th consecutive month, although hiring slowed to its weakest pace since November 2024, employment remained strong compared to long-term trends.

Inflationary pressures increased with input and output prices rising to their highest level in three months. Despite a slight continued rise in input costs, companies leveraged strong demand to pass costs onto customers and boosted purchasing activity at the fastest pace in 16 months to rebuild inventory levels.

Manufacturers’ confidence improved in August, recovering from a three-year low in July, supported by strong demand despite ongoing impacts of US tariffs on growth expectations.

However, India’s superior economic growth did not translate into stock market gains; weak pricing power and US tariffs weighed on corporate profits, reducing foreign investment appeal.

India’s GDP grew faster than expected at 7.8% in Q2, but “nominal growth,” reflecting output at current market prices, slowed to 8.8% from 10.8% in the previous quarter, indicating easing inflation.

Corporate earnings followed a similar trend, with revenue growth of India’s top 3,000 listed companies falling to a seven-quarter low of 3.4% year-on-year, compared to 5.1% in the previous quarter and 6.8% last year, according to ICICI Bank research in Mumbai.

Sat Duhra, Portfolio Manager at Janus Henderson Investors, said: “Core corporate earnings outlook is weak, and we will maintain a low investment focus in coming quarters. The rise in US tariffs is a growth obstacle India cannot currently afford.”