New Delhi [India], February 5 : India's services sector expanded at its slowest pace in over two years in January 2025, as new business growth weakened and demand momentum softened, according to the HSBC India Services PMI data released on Wednesday.
However, job creation saw a notable uptick and business sentiment remained positive despite heightened cost pressures.
But, despite the slowdown, the HSBC Services PMI data suggests that India's services sector remains resilient, with solid job creation, strong export growth, and steady business confidence. However, inflationary pressures and rising competition could act as headwinds in the coming months.
Pranjul Bhandari, Chief India Economist at HSBC, said, "India's services sector lost growth momentum in January, although the PMI remained well above the 50-breakeven level. The business activity and new business PMI indices eased to their lowest levels since November 2022 and November 2023 respectively."
Bhandari added, "That said, new export business partly countered the downtrend and continued to rebound from a dip in late-2024, in line with official data which showed India's services exports shinning in December and capturing a larger share of global trade."
With domestic demand still holding up and global services trade rebounding, analysts expect the sector to maintain healthy, if somewhat moderated, expansion in the near term.
The seasonally adjusted HSBC India Services PMI Business Activity Index fell to 56.5 in January, down from 59.3 in December, marking its lowest level since November 2022.
While this indicated a loss of momentum, the index remained well above the 50-breakeven level, signalling continued growth in the sector.
The slowdown was driven by softer increases in sales and output, with new business inflows expanding at their weakest pace in 14 months.
Some companies attributed output growth to strong demand, new client wins, and investments in technology, while others noted that customer numbers had declined due to competitive pressures.
Despite the moderation in domestic orders, international sales rose at the fastest pace in five months, with demand strengthening from Asia, Europe, the Middle East, and the Americas.
Inflationary pressures persisted, with rising staff costs and higher food prices pushing up expenses for service providers. However, cost inflation remained broadly unchanged from December. Companies passed on higher costs to consumers, resulting in a sharper increase in output charges.
However, India's services sector saw a positive acceleration in job creation, as companies responded to sustained demand and increasing workloads. The hiring rate was among the fastest recorded since data collection began in December 2005.
Outstanding business volumes grew for the 37th consecutive month, hitting the highest level since May 2024, indicating that demand conditions remained fundamentally strong.
Service providers remained optimistic about business prospects over the next 12 months, citing advertising, competitive pricing strategies, and new client acquisitions as key drivers. However, the degree of confidence eased to a three-month low, though it remained in line with historical trends.
India's private sector output also lost momentum, as the HSBC Composite Output Index fell to a 14-month low of 57.7 in January from 59.2 in December. While manufacturing output picked up, it was offset by a weaker services sector expansion.
While cost pressures in the services sector remained higher than in manufacturing, overall input price inflation across the private sector eased to its lowest since October 2024. However, service providers raised prices at a sharper pace than goods producers, keeping overall inflation steady.