August 5: India’s services sector expanded at its slowest pace in nearly four-and-a-half years in July as softer demand, moderate new business inflows, and order postponements weighed on business activity, according to the latest HSBC India Services Purchasing Managers’ Index (PMI) survey released by S&P Global.
The HSBC India Services PMI declined to 53.3 in July from 57.4 in June, marking its lowest level since February 2022. While the index remained above the crucial 50-point threshold that separates expansion from contraction, it fell below its long-term average of 54.4, indicating a noticeable moderation in growth.
Demand Softens, Business Activity Slows
The survey attributed the slowdown to challenging market conditions and weaker sales momentum, which led businesses to postpone orders and reduce outstanding workloads. Slower growth in new domestic orders also dampened overall business activity during the month.
Despite the weaker domestic environment, new export orders remained resilient, supported by stronger demand from clients in the UAE, the UK, and the US, helping cushion the slowdown in overall sales.
Hiring Remains Weak Despite Slight Improvement
Employment growth remained subdued in July. Although hiring improved from June’s six-month low, the recovery was modest, with only 6% of surveyed firms increasing their workforce, while 92% reported no change in staffing levels.
The survey noted that limited bookings and softer sales enabled firms to clear backlogs at the fastest pace in nearly five years, reflecting lower pressure on existing workloads.
Business Confidence Drops to Seven-Month Low
Business sentiment weakened further, falling to its lowest level in seven months. Companies cited uncertainty over demand conditions, although optimism was supported by expectations of improved market conditions, competitive pricing strategies, and higher inbound tourism in the coming months.
Input Costs Ease, Margins Improve
Service providers continued to face rising input costs, including higher expenses for fuel, labour, transportation, technology, and materials. However, the pace of cost inflation slowed to a six-month low, allowing businesses to improve profit margins by raising selling prices.
Among key service industries, finance and insurance was the only sector to record faster growth in both output and new business during July.
Composite PMI Also Weakens
Reflecting the broader slowdown, the HSBC India Composite PMI Output Index slipped to 54.3 in July from 57.1 in June, the weakest expansion since March 2022. While manufacturing activity remained relatively resilient, slower growth in services weighed on overall private sector performance.
Economist’s View
Commenting on the survey, Pranjul Bhandari, Chief India Economist at HSBC, said India’s services sector continued to expand in July, albeit at a slower pace as both domestic and export demand moderated after several months of robust growth. She noted that hiring improved modestly while easing input cost pressures helped strengthen profit margins.
Key Highlights
- HSBC India Services PMI: 53.3 (July) vs 57.4 (June)
- Lowest reading since: February 2022
- Business confidence: Seven-month low
- Composite PMI: 54.3, weakest since March 2022
- Bright spot: Export demand remained strong, led by the UAE, UK, and US
- Hiring: Mostly stable, with only 6% of firms adding employees
