India’s services sector slows as orders fall and costs jump

Growth in India’s services sector moderated slightly in February as new business expansion slowed and cost pressures intensified, according to the latest monthly survey.

The seasonally adjusted HSBC India Services PMI Business Activity Index edged down to 58.1 in February from 58.5 in January. In Purchasing Managers’ Index (PMI) terms, a reading above 50 indicates expansion, while a figure below 50 signals contraction.

Despite the marginal easing, the index pointed to another month of strong growth in the sector.

Pranjul Bhandari, chief India economist at HSBC, said the services industry remained on a solid footing even as momentum in new orders cooled.

“While new order growth slowed to a 13-month low amid rising competition, service providers recorded a notable pick-up in international sales and responded with increased hiring to meet operational needs,” she said.

Survey participants cited improved client enquiries and marketing efforts as supportive factors for sales at some firms. However, others reported that intensifying competition had weighed on overall growth.

Exports were a bright spot, with companies reporting stronger demand from markets including Canada, Germany, mainland China, Singapore, the United Arab Emirates, the United Kingdom and the United States. On average, international sales rose at the quickest pace since last August.

At the same time, cost pressures intensified. February saw the sharpest rise in operating expenses for services firms in two-and-a-half years. Businesses responded by raising their charges at the fastest rate in six months, passing on higher costs — particularly for food and labour — to customers.

“Input and output price inflation accelerated, yet business confidence climbed to its highest level in a year as companies looked to broaden their market presence,” Ms Bhandari added.

Across the wider private sector, activity strengthened. The HSBC India Composite PMI Output Index rose to 58.9 in February from 58.4 in January, marking the fastest pace of expansion in three months, supported by robust manufacturing growth.

Composite PMI readings combine manufacturing and services data, weighted according to their respective contributions to gross domestic product.

New order growth at the composite level remained broadly in line with trends seen around the turn of the year, while employment generation accelerated to its strongest pace since October. However, inflationary pressures also intensified, with input costs and output prices rising at nine- and six-month highs respectively.

The services PMI is compiled by S&P Global from responses provided by around 400 companies across sectors including transport, finance, real estate, communications and business services.

While growth remains firm, the latest data suggest that rising competition and mounting cost pressures could temper momentum in the months ahead.

With PTI input