India Services Growth Rises in September Amid Mixed Quarterly Trends
India's services sector saw a boost in September driven by domestic demand, though quarterly growth hit its lowest level since early 2022.
India's services sector witnessed a notable acceleration in September, marking its strongest performance in three months. According to the latest HSBC India Services PMI, the seasonally adjusted Business Activity Index climbed to 55.2 in September, up from 54.1 in August. While this indicates a healthy expansion—staying well above the critical 50-mark threshold—the broader picture reveals a complex economic narrative.
Despite the September surge, the activity recorded over the July-September quarter represents the slowest expansion for the sector since the period ending in March 2022. This suggests that while the sector is gaining momentum at the end of the quarter, the preceding months were significantly more sluggish.
Domestic Demand Drives the September Surge
The primary engine behind the recent improvement has been robust domestic demand. Companies across various industries reported a significant uptick in new business, which grew at its fastest rate in three months. Several key sectors emerged as leaders in this expansion:
- Finance and Insurance: Saw strong growth in both activity and sales.
- Consumer Services: Recorded significant expansion.
- Digital and Tech: Increased demand for software and digital solutions.
- Logistics and Travel: Higher demand for transportation, tours, and travel services.
- Essential Services: Growth in food services and loan requirements.
"The PMI survey suggested that India's services sector continued to improve, supported by strengthening domestic demand," noted Pranjul Bhandari, Chief India Economist at HSBC. She added that while export business is still expanding, the pace of that growth has begun to moderate.
Mixed Signals in Exports and Employment
While the domestic front looks bright, the international landscape presents a more cautious outlook. Although new export business continues to grow—bolstered by demand from the United Kingdom, the United States, the UAE, and Germany—the speed of this growth has slowed to its weakest level in nearly three years.
The labor market also showed a nuanced trend. Employment levels rose in September, driven by a growing pipeline of projects and stronger order books. However, the intensity of hiring actually eased compared to August. This slowdown in recruitment was largely attributed to more cautious hiring practices within the real estate and business services sectors.
Relief from Inflationary Pressures
Service providers received a welcome reprieve as inflationary pressures began to subside. Input-cost inflation dropped to its lowest level since November 2024, with the slowdown observed across all four service categories surveyed. Companies still facing rising costs pointed toward expenses in food supplies, fuel, insurance premiums, maintenance, and technology resources.
This easing of costs has also impacted how companies price their services. The rate at which firms have been increasing their selling prices moderated in September, reaching its weakest point since June.
Broader Private Sector Outlook
The momentum was not limited to services alone. The HSBC India Composite PMI Output Index, which tracks the broader private sector, rose to 55.9 in September from 54.3 in August. This marks the strongest expansion for the composite index since June. However, much like the services sector, the quarterly average for the composite index also hit its lowest point since the March 2022 quarter, highlighting that the recent uptick is a recovery from a relatively weak start to the fiscal year.