India’s services sector activity improved in September with the PMI climbing to 55.2, supported by strong local demand. However, a significant slowdown in export orders and cautious hiring trends highlight underlying pressure. Investors should monitor how service firms balance these cost benefits against a weak global demand environment.
India’s services sector showed resilience in September, with the HSBC India Services Purchasing Managers' Index (PMI) rising to 55.2 from 54.1 in August. This index, which measures the overall health of the services economy, indicates that business activity continues to expand. The primary engine behind this growth is robust domestic demand, particularly within financial, consumer, and digital services, which are helping to insulate the sector from broader economic challenges.
While the uptick in September offers a positive signal, the broader context remains mixed. The July-September quarterly average for the services PMI dropped to its lowest level since early 2022. This trend is largely being pushed by a sharp decline in international demand. Growth in export orders has slowed to its weakest pace in nearly three years, signaling that global market conditions are providing significantly less support to Indian service providers than in the recent past.
For investors, the data reveals a tug-of-war between domestic strength and external pressure. On the positive side, companies are seeing some relief in operational costs. Input cost inflation for service providers fell to a 10-month low in September. This is a critical indicator to watch, as lower costs can help protect profit margins, provided that service providers can maintain their pricing. When combined with the India Composite PMI—which also increased to 55.9, reflecting growth in both manufacturing and services—it suggests that the economy retains a base level of activity.
However, corporate confidence remains guarded. Hiring activity has softened, suggesting that many businesses are hesitant to ramp up their workforce despite the increase in new business. Only 16% of the surveyed firms expect significant activity growth over the next year. This caution indicates that companies are not yet willing to commit to major long-term expansion, likely due to risks such as geopolitical tensions, fluctuations in global oil prices, and the potential impact of monetary conditions on inflation.
Moving forward, investors may want to monitor company-specific performance regarding export-heavy portfolios. While domestic demand is currently acting as a cushion, the persistent weakness in global markets could impact the revenue growth of IT and other globally-linked service companies. The upcoming quarterly results will be an important monitorable, specifically looking for commentary on margin sustainability and whether the cooling in input costs is reflected in improved bottom-line performance.