PR No – 166
17th Aug 2026
New Delhi
PHDCCI SME Market Sentiment Index Round 5: SME Business Activity Improves Moderately; Outlook Turns More Positive for Q2 FY2026-27
New Delhi, August 17, 2026
The PHD Chamber of Commerce and Industry (PHDCCI) has released the fifth round of its SME Market Sentiment Index (SMESI), indicating continued expansion in business activity among India’s manufacturing SMEs during April–June 2026, alongside a moderately improved outlook for the July–September 2026 quarter.
The SMESI, comprising the SME Business Activity Index (SME-BAI) and the SME Business Outlook Index (SME-BOI), is designed to capture the direction and momentum of business conditions in India’s SME manufacturing sector. An index value above 50 indicates expansion or a positive outlook, while a value below 50 indicates contraction.
SME Business Activity Index rises to 56.9
The SME Business Activity Index increased to 56.9 in Round 5, from 56.5 in Round 4, indicating a moderate improvement in business activity and continued expansion in the manufacturing SME sector during April–June 2026. The improvement was primarily supported by stronger output and production activity. The Output/Production Index increased to 61.7 in Round 5 from 60.0 in Round 4, indicating an expansion in domestic production activity.
New Orders remained at 58.3, indicating sustained demand compared with the previous quarter. At the same time, the Employment Index moderated marginally to 56.7 from 56.9, suggesting some softening in employment activity during the quarter.
The Supplier Delivery Times Index remained at 43.3, unchanged from the previous round, implying that delivery times remained broadly stable over the past six months. The Inventories Index also remained unchanged at 56.7, indicating broadly stable inventory conditions.
SME business outlook strengthens for July–September 2026
The SME Business Outlook Index (SME-BOI) increased to 59.3 for July–September 2026, from 58.7 in Round 4, signalling an improvement in business sentiment and a positive outlook for the next quarter. The survey indicates that 40% of respondents expect business activity to improve during July–September 2026, while 43% expect no change. On hiring, 30% of respondents anticipate an increase in hiring, while 47% expect no change in their hiring plans.
Capital expenditure intentions remain relatively stronger. Around 47% of respondents expect an increase in capital expenditure during July–September 2026, with the survey identifying government schemes and incentives supporting domestic manufacturing, including PLI schemes and MOOWR, among the factors driving these investment intentions.
Manufacturing SMEs maintain positive momentum
The Round 5 results show that the SME manufacturing sector continues to operate in an expansionary zone, with both the Business Activity Index and Business Outlook Index remaining comfortably above the neutral level of 50.
The movement of the two indices across the five rounds indicates that while business activity has moderated from the higher levels recorded in earlier rounds, the sector continues to register positive sentiment. The SME-BAI moved from 57.7 in Round 1 to 56.9 in Round 5, while the SME-BOI stood at 59.3 in Round 5, compared with 60.3 in Round 1.
The findings point to a combination of sustained new orders, stronger production activity and positive capital expenditure expectations, although employment growth remains comparatively moderate said Mr. Rajeev Juneja, President, PHDCCI”.
The PHDCCI SME Market Sentiment Index is intended to provide a timely indicator of manufacturing SME conditions and forward-looking business expectations, supporting assessment of economic activity, investment trends and policy considerations, he added.
Industry concerns
- Working-capital and payment-cycle pressures remain important
Timely receivables remain critical for SMEs because delayed payments can constrain their ability to finance inventories, procure inputs and undertake new investment. PHDCCI’s earlier SME consultations have specifically highlighted the need for effective enforcement of the 45-day MSME payment norm and faster release of blocked deposits and guarantees. - Input and energy costs continue to affect competitiveness
SMEs remain exposed to movements in energy and other input costs, which can place pressure on operating margins, particularly where firms have limited ability to pass higher costs through to customers. PHDCCI has previously identified rising energy costs and input-price volatility as concerns requiring greater risk-management and financial-hedging mechanisms. - External and geopolitical risks remain a downside factor
India’s manufacturing SMEs, particularly export-oriented enterprises, remain exposed to disruptions in global logistics, freight costs, energy prices and external demand. PHDCCI’s previous round identified disruptions associated with the Red Sea and Strait of Hormuz routes as having implications for transit times, freight costs, marine insurance and SME working-capital cycles.
Outlook
The Round 5 findings suggest that India’s manufacturing SMEs are maintaining positive business momentum, with output activity showing a notable improvement and new orders remaining stable. The improvement in the forward-looking index indicates that business sentiment for July–September 2026 has strengthened moderately said Dr. Ranjeet Mehta, SG & CEO, PHDCCI.
At the same time, the relatively modest employment outlook and the share of respondents expecting no change in business activity indicate that the recovery remains measured rather than broad-based. The stronger capital expenditure intentions provide a positive signal for manufacturing capacity and investment activity in the coming quarter.