India’s private sector activity moderated to its slowest pace since October 2022 in March, as weak domestic demand offset a surge in export orders, according to the HSBC flash Purchasing Managers’ Index compiled by S&P Global, as quoted on CNBC.

The HSBC flash India Composite PMI – which tracks combined manufacturing and services output – fell to 56.5 in March from 58.9 in February, missing the Reuters poll estimate of 59.0. A reading above 50 indicates expansion, while a reading below that level indicates contraction.

Domestic Weakness Offsets Export Strength

The slowdown was primarily driven by softer domestic demand, even as international orders rose at a record pace. Manufacturing activity weakened, with the PMI dropping to 53.8 in March from 56.9 in February, falling short of expectations.

The services sector also cooled, with a reading of 57.2 — below forecasts — marking its slowest expansion since January 2025, the same CNBC source highlighted. Factory output saw its weakest growth since August 2021.

Geopolitical Tensions and Inflation Add Pressure

Businesses highlighted the ongoing Middle East conflict, volatile market conditions, and rising inflation as key challenges. Cost pressures have surged to near a four-year high, forcing companies to absorb part of the increase by compressing margins.

India remains particularly vulnerable to prolonged Middle East tensions due to its heavy reliance on energy imports.

Rising energy prices are expected to widen India’s current account deficit, adding pressure on the rupee, which recently touched record lows.

What Lies Ahead?

India’s private sector had shown strong momentum earlier in 2026, supported by improved trade ties with major partners like the United States and the European Union. In February, businesses reported a sharp rise in new orders and export demand. It means that, excluding geopolitical tension, the underlying strength is intact.

However, the recent geopolitical shock appears to have disrupted that recovery trend. It all depends on the trajectory of the Middle East conflict and energy prices.

The Iran war — which involves one of the most crucial energy-focused waterways, the Strait of Hormuz — is less likely to be prolonged. Hence, sooner or later, the oil market will stabilize, and so will global inflationary pressures.

If the damage to the energy infrastructure is limited, oil prices can drop back to pre-war levels soon. Then, we might see a rebound in Indian equities. iShares India 50 ETF (INDY Quick QuoteINDY - Free Report) has lost about 9.7% over the past month (as of March 23, 2026). iShares MSCI India Small-Cap ETF (SMIN Quick QuoteSMIN - Free Report) , too, retreated about 9% over the same timeframe.