PHDCCI SME Index signals strong growth momentum for Q1 FY2026

ANI May 20, 2025 190 views

The PHDCCI SME Market Sentiment Index reveals strong optimism among Indian SMEs for Q1 FY2026, with 67% anticipating business growth. Manufacturing activity expanded significantly, driven by high demand and government support. Hiring and capital expenditure plans also reflect confidence in the sector. The report highlights the role of policy initiatives in transforming SMEs into a dynamic economic force.

"The continuous handholding by the government has resulted in formalization of more than 5 crore MSMEs, contributing significantly to exports and jobs." – Dr. Ranjeet Mehta, PHDCCI
New Delhi, May 20: Industry body PHDCCI's SME Market Sentiment Index suggests a robust growth outlook for the first quarter of financial year 2026 (Q1 FY2026), based on a survey conducted on 3,000 pan-India SME firms across various manufacturing units.

Key Points

1

SME Business Outlook Index at 60.3 signals strong confidence

2

67% expect improved business activity in Q1 FY2026

3

Employment Index steady at 55.0 amid rising demand

4

Government initiatives boost SME sector growth

SME Business Outlook Index (SME-BOI) which provides the outlook for the next quarter stood at 60.3, signaling strong confidence in the economy. Notably, 67 per cent of respondents expect an improvement in business activity, 47 per cent anticipate increased hiring, and 53 per cent plan to boost capital expenditure.

The SME Market Sentiment Index shows a positive momentum in business activity for the fourth quarter of financial year 2025 (Q4 FY2025) compared to previous quarter Q3 FY2025.

The value of SME Business Activity Index (SME-BAI) ranges from 0 to 100, where 50 is the base value. The index above 50 reflects expansion of manufacturing activities compared to previous quarter values below 50 reflects contraction in business activity.

The values of the SME Business Outlook Index (SME-BOI) range from 0 to 100. The index above 50 reflects expansion of manufacturing activities for the next quarter while values below 50 reflects contraction in business activity for the next quarter.

The SME Business Activity Index (SME-BAI) recorded a robust 57.7 points, indicating significant expansion in manufacturing activities compared to the previous quarter. This growth is driven by a strong New Orders Index of 71.7, reflecting high demand and a strong work pipeline, along with an Output/Production Index of 66.7, pointing to business activities gaining momentum.

The market sentiment index report adds that government's proactive and effective initiatives--including credit support, technological assistance, infrastructure development, and skill training--have significantly transformed small and medium-sized enterprises (SMEs) into a vibrant and dynamic sector of the Indian economy.

The objective of the SME Business Activity Index (SME-BAI) index is to capture the direction and momentum of the SME manufacturing sector by assessing performance of key business activity relative to the previous quarter, while SME Business Outlook Index (SME-BOI) captures the business outlook for next quarter.

The SME Business Activity Index (SME-BAI) reflects the expansion or contraction of SME manufacturing activity in the selected quarter as compared to the previous quarter. The SME Business Outlook Index (SME-BOI) indicates the anticipated momentum of SME manufacturing activity for the coming quarter, said the study.

The Employment Index stood steady at 55.0, aligning with the rising economic activity, while the Inventories Index of 60.0 suggests that firms are actively restocking to meet anticipated demand, said Hemant Jain, President, PHDCCI.

Dr Ranjeet Mehta, Secretary General and CEO of PHDCCI, emphasised that these indices have been created to fulfill the need for a reliable, data-driven tool to assess the health and outlook of India's SME manufacturing sector, which is a backbone to the Indian economy. The continuous handholding by the government has resulted in formalization of more than 5 crore MSMEs, contributing significantly to exports, creating millions of jobs and fostering inclusive development. Going forward, to fulfil our endeavor to promote the growth of the SME sector, we will add indices related to exports and services market.

Reader Comments

R
Rahul K.
This is excellent news! As someone running a small manufacturing unit in Surat, I can confirm the positive sentiment. Our order books are full till September and we're planning to hire 10 more workers. The government's Udyam registration scheme has really helped us access credit easily. 🇮🇳
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Priya M.
While the numbers look promising, I hope this growth reaches tier-2 and tier-3 cities equally. My family's textile unit in Madurai is still struggling with high raw material costs. The index should also track regional disparities in SME performance.
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Amit S.
The New Orders Index at 71.7 is 🔥! Shows that Make in India is working. Our auto components SME in Pune has started getting inquiries from European clients too. Just hope the banks continue their supportive stance with working capital loans.
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Neha T.
Good to see employment index at 55. SMEs are the real job creators in India. But the report doesn't mention wage growth - are these new jobs paying well? As an economics student, I'd like to see that data included in future reports.
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Sanjay P.
The 53% planning capex increase shows real confidence! We're investing in solar panels for our Ludhiana unit to cut electricity costs. Government's technology assistance programs should focus more on green manufacturing solutions.
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Kavita R.
As a chartered accountant working with SMEs, I see both sides. While many clients are doing well, some still face delayed payments from bigger companies. Hope the government introduces stricter payment timelines in contracts. Otherwise, great momentum!

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PHDCCI SME Index Q1 FY2026 SME growth manufacturing MSME business outlook
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