India's Services PMI slowed to its lowest level in more than four years in July, as business activity and new order inflows were dampened by softer demand and intense competition. The HSBC India Services PMI, compiled by S&P Global, dropped to 53.3 in July from 57.4 in June, and remains at its lowest level since February 2022 when it was at 51.8. But despite the major slowdown, the reading remained above the 50 mark, indicating expansion, putting the Services PMI in its 60th straight month in expansionary territory.
Key Highlights
- India Services PMI fell to a 4-year low in July, from 57.4 in June.
- Manufacturing and services activity both slowed down, bringing composite PMI to an over 4-year low of 54.3.
Competition and Softer Demand Weigh on Growth
The survey found that the panel members had identified competitive pressures, declining orders, weaker market conditions with order delays as factors affecting growth. New business inflows also expanded at a moderate pace during the month - the slowest since February 2022.
Among the four broad segments tracked by the survey - consumer services, finance and insurance, real estate and business services, and transport, information and communication - only finance and insurance recorded a quicker rate of expansion in both new business and output.
"In July, India's services activity grew slightly slower after several months of robust growth, as new business did not expand as fast in the domestic and export sectors", said Pranjul Bhandari, Chief India Economist at HSBC India.
Export Orders Outperform Domestic Sales
Interestingly, new export orders rose at a solid rate at the start of the second quarter of the financial year, outperforming total sales growth. Demand improved notably from clients in the United Arab Emirates, the United Kingdom and the United States, offering some support to overall business activity.
Hiring Rebounds Modestly After June Slowdown
Job creation also improved in July, recovering from a six-month low recorded in June. However, the uptick remained modest, with only 6% of surveyed firms reporting higher payroll numbers, while the vast majority - 92% - reported no change in employment levels.
Pranjul Bhandari noted that hiring showed a moderate rebound, while profit margins improved as input costs softened and firms raised their selling prices during the month.
Input Costs Ease, But Selling Prices Rise
Input costs continued to rise in July, driven by higher fuel, labour, material, technology and transportation expenses. However, the pace of input cost inflation eased to a six-month low. At the sub-sector level, consumer services recorded the strongest rate of cost inflation but the slowest growth in output prices, while real estate and business services saw the sharpest rise in final prices. Across the services economy as a whole, output prices rose at their fastest pace since April.
Also Read: Indian Manufacturing PMI Dips to Lowest Level in 5 Yrs of 53.5 in July
Manufacturing Slowdown Adds to Broader Concerns
The moderation in Service PMI coincided with a slowdown in manufacturing, with the Manufacturing PMI easing to a near five-year low of 53.5 in July, down from 54.2 in June.
Reflecting the combined slowdown, the HSBC India Composite PMI Output Index fell to an over four-year low of 54.3 in July, compared with 57.1 in June. The survey noted a particularly sharp slowdown in the services economy, while factory production growth ticked marginally higher, with manufacturers outperforming service providers in terms of sales volume Agrowth.
Despite the broader slowdown, employment growth remained stronger in the services economy, helping offset weaker hiring in manufacturing and contributing to faster job creation at the composite level. Meanwhile, the rate of input cost inflation across the private sector eased to a six-month low, even as selling prices rose at their fastest pace since April, according to S&P Global.
