Indian small and medium enterprises (SMEs) have had a good beginning to Q2 of FY26. According to a survey conducted by ASSOCHAM and Dun & Bradstreet India, 62% of small and medium-sized enterprises (SMEs) were optimistic about the increase in sales volumes in the upcoming quarter of July-September of the year 2025. This confidence wave spreads a wider area of resiliency and flexibility of Indian businesses despite all the inflationary pressures, lack of talent, and doubting economic conditions in the global economies.

Policy and export activity

About 56% of SMEs experienced increased orders of new exports, and this was an indication that they have been strategic in thriving in foreign markets so as to increase revenue flows. This trend indicates that Indian SMEs are increasingly capitalizing on the international demand to counter the domestic challenges in order to expand their presence.

In Q2 FY26, 57% of businesses expect selling prices to increase. This ability to withstand the effects of competition indicates better prices and brand position, and cost control. It also indicates that SMEs can transfer a portion of the burden of input costs to the consumers in a manner that does not impact much on demand, a factor that is indicative of the maturity of market forces.

The government initiatives of supporting the SMEs, like the facilitation of credits, digitalization of business, and export-oriented business, among others, are critical to maintaining the momentum. The importance of maintaining focus on infrastructure development, skilling programs, and making business easy to do will be needed to unleash India’s SME potential to the fullest.

Dun & Bradstreet India Managing Director, Avinash Gupta, said, “Stability in selling prices and easing input cost pressures are supporting margin predictability. Meanwhile, prudent inventory management and a stable employment outlook underscore operational resilience.”

Quotation Source: SME Futures  

Inventory and profit levels

Sales and pricing are still showing good indicators, but net profit expectations are down from the previous quarter. In Q2 FY26, only 36% of SMEs anticipate an expansion in profits, a steep fall compared to the 83% who estimated an increase last quarter. This decline will indicate that although an increase in revenues is expected, there is pressure on the margins because of an increase in operations and difficulties in attracting talent.

There has been improved feeling on the prices of raw materials. Only 8% of those surveyed anticipate a fall in the cost of inputs, representing an increase compared with 2% in the previous quarter. The fact that the costs will ease, together with stable selling prices, may allow businesses to have reasonably predictable margins and plan more prudently in the medium term.

There is also an increase in inventory, with 60% of SMEs predicting higher levels of raw materials and work-in-progress stock. This accumulation suggests optimism in future orders and a solution-oriented attitude to deal with the supply chain delays. It is also an indication of strategic inventory planning to take advantage of seasonal consumption and export patterns.

Employment expectations are strong, as 68% of the respondents foresee an expansion in their workforce. This is a good sign of expansion and capacity enhancement of the business. 19% of SMEs experienced difficulty in recruiting the right persons, as compared to 9% in the previous quarter. This widening skills gap may be a detrimental factor without specialized measures to address it in terms of both skilling activities and recruitment.

Insufficient demand continues to be a limiting factor

Insufficient demand remains a sourcing constraint to many SMEs, despite the general optimism. According to the report, 18% of the companies cited poor demand as a major worry, a major increase compared to 7% previously. It implies that although macro indicators are also looking healthier, there are still challenges that are specific to the sector and abrupt patterns of recovery.

Consumers will tend to protect the discretionary industries related to consumer durables and non-essential services, as they tend to be the most affected by changes in demand. Export-driven and infrastructure-based industries, on the other hand, have a good chance of being favored by policy decisions and global winds.

The general economic climate is also lending itself to a good mood. Cooler inflation, expectations of further easing of monetary policy, and a decent monsoon are likely to pick up consumption and investment. These macroeconomic platforms offer reviving conditions to SMEs to strategize and venture into new markets.

Conclusion

The survey by the ASSOCHAM-Dun & Bradstreet tells a story of an industry being conservative, goal-oriented, and becoming globally minded. September-December could be a turning point towards the recovery of India after the pandemic, with 62% of the SMEs expecting growth in sales in the July-September quarter of FY26.