Commerzbank’s India section notes September flash PMIs pointing to stronger end-Q3 activity, with both manufacturing and services indices well above 50. Domestic demand is robust, but elevated input and output prices, especially in manufacturing, keep upside inflation risks high. The bank expects RBI to stay cautious and in wait-and-see mode, while USD/INR is supported by broad Dollar strength and portfolio outflows.
Growth momentum with price pressures
"The flash September manufacturing PMI rose to 55.7 from 52.8 in August. This reading marked its highest level in seven months, driven by stronger domestic demand. The index remained comfortably above the 50-neutral threshold and above its long-run average. New orders accelerated and outpaced growth in the services sector. The expansion was led by stronger demand for electronics, pharmaceuticals and food products."
"The flash services PMI increased to 55.8 from 54.1 in August, reaching a three-month high. However, it remained below the May 2026 peak of 59.8. New business growth strengthened, supported by firmer demand for transportation and software services. However, growth in new export orders eased and lagged that of the manufacturing sector."
"Overall, the September flash PMIs suggest economic activity regained momentum at the end of Q3, supported by resilient domestic demand across both manufacturing and services. At the same time, elevated input and output price pressures, particularly in manufacturing, indicate that underlying upside inflation risks remain elevated."
"While year-to-date CPI inflation has averaged 3.8%, below the Reserve Bank of India's (RBI) FY2026-2027 forecast of 5.0%, the persistence of cost pressures suggests policymakers will likely maintain a cautious stance. This supports our view that the RBI will remain in a wait-and-see mode, with higher global crude oil prices and evidence of second-round effects continue to pose upside risks to the inflation outlook."
"In FX, USD/INR rose 0.2% to 95.93 yesterday, supported by broad USD strength and foreign portfolio outflows. Foreign investors were net sellers of USD338mn in equities and USD134mn in bonds so far this week. Nonetheless, RBI Deputy Governor Poonam Gupta argued that there is a "fair case" for INR appreciation, citing stretched valuations in foreign markets, stronger domestic bank balance sheets, and the potential inclusion of Indian bonds in global indices as supportive factors."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.