India’s growth story strong, but rising costs, market volatility niggling concerns

At the same time, the reports highlight an important concern. Companies are growing their sales and receiving more orders, but many are also facing higher costs. That means the next phase of India's growth will depend not just on how much businesses sell, but on how much of that growth eventually turns into profits, jobs and higher incomes.

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For the common Indian, this matters because economic growth ultimately affects employment, household incomes, prices, infrastructure, borrowing and investment.

Investment key driver of growth

According to Bajaj Broking Prive’s latest monthly outlook, India’s real GDP grew 7.8 per cent in Q1FY27, while Gross Fixed Capital Formation, or GFCF, increased 11.9 per cent.

GFCF essentially measures investment in productive assets such as infrastructure, machinery and other assets that can help generate economic activity in the future.

The fact that investment grew faster than overall GDP is important. It suggests that India's current growth cycle is increasingly being supported by the creation of productive capacity rather than consumption alone.

The investment share of GDP rose to 34.3 per cent in Q1FY27, compared with 31.4 per cent a year earlier. Central government capital expenditure also increased by approximately 24 per cent year-on-year during the quarter.

Bajaj Broking Prive highlighted government spending and investment across transport infrastructure, railways, logistics, defence manufacturing and urban development, while also pointing to activity in power infrastructure, metals, data centres and manufacturing.

For ordinary Indians, a sustained investment cycle can eventually mean more infrastructure, more construction and manufacturing activity, new business opportunities and potentially more employment.

PMI explained: what does 55.2 actually mean?

One of the most widely discussed numbers in the latest economic data is the HSBC India Services PMI – pegged at 55.2 in September, up from 54.1 in August. But for someone who does not follow economic indicators, a number such as 55.2 can be confusing.

The simplest way to understand PMI is to think of it as a monthly health check of businesses.

Companies are asked whether business conditions such as activity and new orders are improving or worsening compared with the previous month. Their responses are converted into an index. The key number is 50.

A PMI reading above 50 means business activity is expanding, while a reading below 50 means activity is contracting. Importantly, a reading of 55.2 does not mean the services sector grew by 55.2 per cent. It indicates that business conditions were expanding.

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The rise in HSBC India Services PMI to 55.2 in September indicated that India's services sector expanded at its fastest pace in three months. The survey also found that new business increased at its fastest pace since June.

In everyday terms, it means service companies were generally getting more business. That could mean more orders for software companies, more business for banks and insurance companies, greater demand for transportation, travel and other consumer services. The survey identified demand for digital solutions, food, insurance, loans, software, transportation and tours and travel among the areas supporting activity.

Domestic demand provides support

The HSBC survey suggests that domestic demand remains an important pillar of the services economy.

Pranjul Bhandari, chief India economist at HSBC, said the PMI survey showed that India's services sector "continued to improve, supported by strengthening domestic demand." She also noted that export business continued to expand, although the pace of growth slowed.

That distinction is important for India.

It means the country's growth is not relying entirely on foreign customers. Indian consumers and businesses themselves are generating a significant amount of demand for services.

However, the broader picture is not uniformly strong. Despite the improvement in September, the average services-sector growth during the July-September quarter was the weakest since the quarter ending March 2022.

So the latest PMI is encouraging, but it should not be interpreted as evidence that every part of the services economy is accelerating rapidly.

More orders means more jobs

The HSBC survey also showed that service providers continued to recruit additional workers in September, supported by improving order books and projects in the pipeline.

However, the pace of employment growth was softer than in August.

For ordinary Indians, employment is ultimately one of the most important ways economic growth becomes meaningful.

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When companies receive more orders, they may need more workers. Those workers earn incomes, and their spending supports other businesses. This creates a wider cycle of economic activity.

But the PMI should not be read as saying that jobs or wages are rising for everyone. It is an indicator of business activity and hiring trends among the companies covered by the survey.

Easing of service-sector costs

The HSBC report provides another positive signal: input-cost inflation for service providers fell to its weakest level since November 2025.

Bhandari said that input-cost pressures had eased to a 10-month low, reducing the need for service companies to raise selling prices.

This matters because businesses face a simple problem when their costs rise: either they absorb the increase and accept lower margins, or they pass some of the cost on to customers.

Lower cost pressure can therefore provide some breathing room for companies.

It does not necessarily mean prices for consumers will fall, but it reduces one source of pressure on businesses.

Manufacturing improving, costs a concern

The FICCI manufacturing survey presents a similarly positive but mixed picture.

Around 95 per cent of manufacturers surveyed reported higher or unchanged production levels in Q2FY27, compared with 77 per cent in the previous quarter. Around 90 per cent reported higher or unchanged orders, compared with 77 per cent previously.

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Average manufacturing capacity utilisation also improved to around 75 per cent, from 72 per cent in the previous survey.

Hiring intentions strengthened as well. Forty-three percent of respondents said they planned to hire additional workers over the next three months, compared with 35 per cent in the previous quarter.

However, there is a significant catch.

Nearly 83 per cent of manufacturers reported an increase in production costs as a percentage of sales, compared with 79 per cent previously.

FICCI said manufacturers attributed the higher costs mainly to raw materials, energy, currency depreciation, logistics and utility expenses.

This means factories may be getting busier, but producing goods is also becoming more expensive.

Shortage of skilled workers

The FICCI survey also highlights an issue that could become increasingly important as investment and manufacturing expand.

Around 67 per cent of respondents said they were not facing problems with workforce availability. But the remaining 33 per cent reported a shortage of skilled workers and said greater efforts were needed from both industry and government.

For India, this is an important distinction. The challenge is not necessarily simply finding people to work, but finding people with the skills required by increasingly sophisticated manufacturing and industrial businesses.

Strong revenue growth, but not strong profits

Bajaj Broking Prive highlights another important development for investors.

Nifty50 companies recorded 18.4 per cent year-on-year revenue growth in Q1FY27, while profit growth was lower at 11.8 per cent. For the Nifty500, revenue grew 18.9 per cent, compared with profit growth of 11.1 per cent.

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The gap between revenue and profit growth shows why margins are becoming an important focus.

In simple terms, companies may be selling more but retaining less of each additional rupee of revenue because costs are rising.

That is why Bajaj Broking Prive expects the remaining FY27 earnings season to increasingly depend on earnings quality rather than revenue growth alone.

Credit, domestic investors add support

Bank credit is another source of strength.

According to Bajaj Broking Prive, scheduled commercial bank credit grew 18.13 per cent year-on-year in the fortnight ending September 15, 2026. Services-sector credit grew 24.3 per cent year-on-year in August, while industrial credit increased 18.2 per cent.

Domestic investors are also playing a larger role in Indian markets.

The report estimates that while FIIs/FPIs remained net sellers of approximately ₹2.72 trillion over the trailing 12 months, DIIs recorded net purchases of approximately ₹8.54 trillion.

Monthly SIP inflows have remained above ₹32,000 crore.

This growing domestic participation provides support to Indian markets and reduces dependence on foreign capital. But Bajaj Broking Prive also cautions that strong domestic liquidity has increased the possibility of valuation excesses, particularly in the mid-cap and small-cap segments.

Crude prices biggest external risk

Despite the positive domestic picture, there is one major external risk that India cannot ignore: crude oil prices.

Bajaj Broking Prive considers a crude oil range of $90-$110 per barrel manageable, but warns that prices above $110 could put pressure on the current account deficit, the rupee, inflation and corporate earnings.

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For ordinary households, a sustained increase in crude prices can eventually affect transportation and other costs across the economy.

What does this mean for common Indian?

Taken together, the three reports paint a picture of an Indian economy that remains fundamentally strong but is entering a more demanding phase.

HSBC shows that services activity strengthened in September, with domestic demand and new business supporting growth, while service-sector cost pressures eased.

FICCI shows that manufacturing production, orders, capacity utilisation and hiring intentions have improved, but rising production costs remain a concern.

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Bajaj Broking Prive sees India's broader growth cycle as domestic, investment-led and structurally resilient, while warning that margins, valuations and crude oil prices need close monitoring.

For the common Indian, the real test is whether these headline numbers eventually translate into more jobs, better incomes, stronger infrastructure and manageable inflation.

For businesses, the challenge will be converting strong demand and investment into sustainable profits.

And for investors, the message is perhaps the simplest: India's growth story remains intact, but a strong economy does not automatically mean every company or stock will deliver strong returns.

The foundation remains supportive. The next stage of India's growth, however, will depend on whether the country can turn investment into productive capacity, business activity into quality employment, and revenue growth into sustainable profits.