India’s services sector growth fell to a four-and-a-half-year low in July as new business orders eased in both domestic and export markets. The HSBC India Services PMI Business Activity Index fell to 53.3 in July from 57.4 in June.
The HSBC India Composite PMI Output Index also declined to 54.3 in July from 57.1 in June. The July Composite PMI, which combines both manufacturing and services, pointed to the slowest expansion in private sector activity since March 2022. While manufacturing output growth improved marginally, the sharp slowdown in services pulled the composite index lower. Firms continued to create jobs, input cost inflation eased to a six-month low and selling price inflation accelerated to its fastest pace since April.
The reading remained above the 50-mark that separates expansion from contraction, it signalled the weakest pace of growth in 53 months.
Profit margins improve as firms raise selling prices: HSBC
Pranjul Bhandari, Chief India Economist at HSBC, said, “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. Hiring showed a moderate rebound, while profit margins improved as input costs softened and firms increased their selling prices.”
New business growth loses momentum
New business inflows in the service sector rose only moderately in July, with the pace of growth easing to its slowest level since February 2022.
According to HSBC monthly survey, companies said softer demand, tougher competition, weaker market conditions and order postponements affected sales during the month. Among the four broad services segments tracked by the survey, only the Finance & Insurance sector recorded faster growth in output and sales.
Export demand stays strong
Despite slower domestic demand, overseas business remained a key support for the service sector.
New export orders grew at a solid pace, with firms reporting stronger demand from clients in the UAE, the UK and the US. Export orders expanded faster than total new business during the month.
Hiring improves, but remains modest
Service providers continued to hire in July after employment growth weakened in June.
However, hiring remained limited, with only 6% of firms increasing their workforce, while the vast majority reported no change in staffing levels. At the same time, outstanding business declined at the fastest pace in nearly five years as companies cleared pending work amid weaker bookings.
Cost pressures ease, firms raise prices
Input cost inflation softened to a six-month low and the weakest level since January. Companies continued to face higher fuel, labour, material, technology and transportation costs, but the overall pace of cost increases moderated.
Even as cost pressures eased, service providers increased the prices they charged customers at the fastest pace since April, helping improve profit margins.
Business confidence weakens
Companies remained optimistic about future activity, supported by expectations of stronger demand, improved market conditions, competitive pricing and higher inbound tourism.
However, overall business confidence slipped to a seven-month low in July.