Services activity hit a four-month high in October. The details show strong domestic demand, the lowest cost pressure in six years and a sharp slowdown in export orders.
India’s services sector grew at its fastest pace in four months in October. The HSBC India Services PMI rose to 55.8 from 55.2 in September, according to the final reading released on Wednesday. Any reading above 50 signals expansion.
The composite PMI, which combines manufacturing and services, rose to 56.2 from 55.9.
Both final readings were lower than the flash estimates released in late October. The flash services PMI had been 56.2 and the flash composite 56.7. The final figures still show solid growth, but slightly less than first indicated.
All four broad segments covered by the survey reported faster growth in activity and new orders. Finance and insurance led, while real estate and business services grew the slowest.
Strong at home, softer abroad
The headline number hides a clear split between domestic and foreign demand.
At home, business is improving. New orders grew at their fastest pace since June, driven by domestic customers. That fits with other recent data: record October GST collections, record passenger vehicle sales, and strong volume growth reported by consumer companies such as HUL and Marico.
Abroad, demand is weakening. New export orders grew at their slowest pace since February 2023, a 45-month low. India’s services exports, mainly IT, consulting, business services and financial services, depend heavily on clients in the US and Europe.
That matters because services exports have been one of India’s main strengths. They offset India’s large trade deficit in goods and support the rupee. A sustained slowdown in services exports would put more pressure on the current account at a time when oil import costs are already high.
It also helps explain the weakness in IT stocks. Indian IT companies have reported slow growth this season. Infosys cut its revenue growth guidance to 1–2%, and US technology clients are under pressure as investors question the cost of AI spending. The PMI’s export figures suggest that slowdown is spreading to other service exports.
Hiring also cooled. Employment growth in services eased to a four-month low, suggesting companies have enough staff to meet current demand and are being cautious about expanding.
The detail that matters most for the RBI
The most useful figure for policymakers is inflation. Input cost inflation in services eased to its lowest level in more than six years.
That matters for the RBI, which raised its repo rate to 5.50% in October to contain inflation from high oil prices. If services companies are seeing their costs rise only slowly, they have less reason to raise prices. Services make up a large part of consumer inflation, so easing cost pressure there would help the RBI.
Combined with the recent fall in oil prices, the data could allow the RBI to keep rates on hold at its December meeting rather than raising them again. That would support borrowing, consumer spending and bank stocks.
So the best services reading in four months contains three distinct messages: domestic demand is strong, inflation pressure from services is fading, and foreign demand for Indian services is weakening. Manufacturing PMI for October was 54.7, with factories building up stocks of raw materials to guard against supply shortages. Together, the two surveys suggest India’s economy is in good shape for now, but more dependent than usual on domestic spending to keep it growing.
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