India’s services sector growth slowed to its weakest pace in more than four-and-a-half years in July as softer domestic and export demand, intense competition and weaker customer enquiries weighed on business activity, according to the latest HSBC India Services Purchasing Managers’ Index (PMI) released on Wednesday.The seasonally adjusted HSBC India Services PMI Business Activity Index fell to 53.3 in July from 57.4 in June, marking the weakest growth rate in 53 months.Although the index remained above the neutral 50 mark, indicating continued expansion, the pace of growth was the slowest since early 2022.
New orders slow as demand weakens
The survey showed that new business inflows expanded at the slowest pace since February 2022, with firms attributing the slowdown to fierce competition, fading demand, softer market conditions and order postponements.“India’s services sector continued to expand in July, albeit at a slightly slower pace, as new business growth eased in both domestic and export markets after several months of strong performance,” said Pranjul Bhandari, chief India economist at HSBC.Among the four service sub-sectors tracked by the survey, only the Finance & Insurance segment recorded faster growth in output and sales.Despite the slowdown, overseas demand remained relatively resilient. Service providers reported gains from clients in the United Arab Emirates, the United Kingdom and the United States, helping export business grow at a pace that outperformed overall sales growth.
Hiring improves but confidence slips
Employment growth improved modestly after dropping to a six-month low in June, with the survey showing that 6 per cent of firms increased hiring, while 92 per cent reported no change in workforce strength.“Hiring showed a moderate rebound, while profit margins improved as input costs softened and firms increased their selling prices,” Bhandari said.However, business confidence weakened further, falling to a seven-month low. Optimism declined for the fourth straight month despite expectations of stronger demand, better market conditions, competitive pricing strategies and higher inbound tourism in the months ahead.Outstanding business declined at its fastest pace in nearly five years due to limited bookings and weaker sales.
Input costs ease, selling prices rise
The survey showed that input cost inflation eased for the fourth consecutive month, reaching its lowest level since January, although businesses continued to report higher expenses related to fuel, labour, raw materials, technology and transportation.At the same time, companies raised selling prices at the fastest pace since April, indicating that firms continued to pass on part of their higher operating costs to customers.
Private sector activity also loses momentum
The broader HSBC India Composite PMI Output Index, which combines manufacturing and services activity, dropped to 54.3 in July from 57.1 in June, its weakest reading since March 2022.The slowdown was driven largely by weaker performance in the services sector, although manufacturing output growth improved marginally.The survey also showed that faster hiring in services more than offset slower employment growth in manufacturing, contributing to stronger job creation across the private sector.The HSBC India Services PMI is compiled by S&P Global based on responses from around 400 service sector companies across the country.
