India services activity slows to 17-month low in June as domestic demand weakens

The loss of momentum points to more challenging market conditions and weaker demand, particularly at home, says Pranjul Bhandari, Chief India Economist at HSBC

India's services sector experienced a significant slowdown in June, reaching a 17-month low due to weakening domestic demand and subdued hiring. While export orders provided a bright spot, overall business activity moderated. This trend also impacted the broader private sector, with the composite PMI indicating slower growth. Despite the cooling, the sector remains in expansionary territory.

India’s services sector activity lost momentum in June, with growth easing to a 17-month low due to weakening domestic demand and difficult market conditions, according to a monthly survey released on Friday. The HSBC India Services PMI Business Activity Index declined to 57.4 in June from 59.8 in May.Although the index remained above the 50-point threshold that separates expansion from contraction, the reading marked the weakest level since January 2025, indicating a slowdown in the pace of growth.The survey noted that while the services sector continued to expand, overall output and sales growth were constrained by softer client demand and challenging business conditions. Many firms reported reduced interest from domestic customers, which weighed on new business inflows. As demand softened, hiring activity also slowed. After adding jobs in April and May, service providers largely held back on fresh recruitment in June, reflecting caution over future demand trends.HSBC Chief India Economist Pranjul Bhandari said the services PMI remained in expansion territory but pointed to a clear loss of momentum. She noted that weaker domestic demand and challenging conditions were key factors behind the slowdown, even as overseas demand showed strength.According to the survey, external demand remained a bright spot, with export orders rising at their fastest pace in three months. India's Manufacturing Growth Slows In June As PMI Drops To 54.2 Companies reported stronger international sales from key markets including the United States, Germany, Australia and the UAE.On the inflation front, cost pressures eased further. Input cost inflation fell to a five-month low, with firms reporting increases in electricity, food, fuel and transport expenses but at a slower pace than before. Meanwhile, the rise in output prices charged to customers was the weakest since November 2025.The HSBC India Composite PMI Output Index, which combines services and manufacturing activity, also moderated to 57.1 in June from 59.3 in May, signalling a broad-based slowdown in growth momentum across sectors.Overall sales growth slowed to a three-month low, job creation weakened to its lowest level so far this year, and business confidence dropped to a five-month low, reflecting caution among service providers.Despite these challenges, strong export demand continued to support the sector, helping offset some of the weakness in domestic consumption.

Challenging market conditions and reduced client interest dampened sales, resulting in stagnant hiring activity and lower business confidence

India's dominant services sector expanded at its slowest pace in 17 months in June as domestic demand weakened sharply and overall new business grew at its slowest rate in over two-and-a-half years, according to a survey that also showed hiring nearly stalling. HSBC's India Services Purchasing ‌Managers' Index (PMI), ⁠compiled by ⁠S&P Global, fell to 57.4 last month from May's 59.8, but was slightly higher than a preliminary estimate of 57.3. Readings above 50.0 indicate growth in activity. "The loss of momentum points to more challenging market conditions and weaker demand, particularly at home," said Pranjul Bhandari, chief India economist at HSBC. New business - a key ⁠gauge of ‌demand - rose at the slowest pace since November 2023. International demand offered a partial offset with new export ⁠orders growing at their fastest pace in three months.<iframe src="https://economictimes.indiatimes.com/dynamicchart?tab=SERPMI&year=10&type=line" width="100%" height="520" frameborder="0" scrolling="yes" border="0"></iframe> With demand softening, headcount was barely increased and only around 1% of firms reported taking in additional staff - a marked retreat from strong job creation in April and May. Input cost inflation eased to a five-month low as the price of electricity, food, fuel and transportation rose at a ‌softer pace. Firms passed on less of that burden to clients as the prices charged sub-index fell to a seven-month low. Business confidence ⁠faded to a five-month low with firms citing competition, difficult economic conditions and rupee depreciation as concerns, underscoring broader caution about global trade uncertainty and financial market volatility. The India Composite PMI, which covers both services and manufacturing, slipped to its weakest since March as output, new orders and employment all expanded at softer rates across the private sector and business sentiment hit a five-month low.