India's services sector experienced a notable deceleration in June, with the HSBC India Services PMI Business Activity Index falling to 57.4 from 59.8 in May. According to reports from The Times of India, this represents the lowest reading in 17 months and marks a significant moderation from the previous month's performance. The index, compiled by S&P Global based on responses from around 400 service-sector companies, was slightly higher than a preliminary estimate of 57.3, indicating the weakest upturn in services activity in 17 months. As per The Times of India, the service economy remained firmly inside expansion territory, but the PMI results showed a loss of momentum as challenging market conditions and reduced client interest stymied growth of total sales and output. The index, based on a single question asking how the level of business activity compares with the situation the month before, was comfortably above both the neutral mark of 50.0 and its long-run average, to indicate a historically strong rate of expansion.
The moderation in services activity was primarily driven by new business - a key gauge of demand - rising at the slowest pace since November 2023, as reported by The Times of India. While some companies benefited from competitive pricing, stronger e-commerce demand, higher customer bookings and improved local tourism, several firms faced challenges from challenging market conditions and reduced client interest. Hiring activity nearly stalled during the month as firms indicated that 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. According to The Times of India, the slowdown was driven by the weakest increase in new orders in more than two-and-a-half years, highlighting softer domestic demand. As per The Times of India, HSBC Chief India Economist Pranjul Bhandari noted that the loss of momentum points to more challenging market conditions and weaker demand, particularly at home. Business confidence also weakened, falling to a five-month low as companies cited difficult economic conditions, rising competition and concerns over rupee depreciation, according to Reuters.
Despite domestic challenges, new export orders rose at the fastest pace in three months, supported by improved demand from clients across multiple countries including Australia, Belgium, Canada, Germany, Malaysia, Nepal, Oman, Qatar, Singapore, the UAE and the US, according to The Times of India and PTI. This export strength helped offset some of the domestic demand weakness and provided a key area of sectoral resilience. HSBC Chief India Economist Pranjul Bhandari noted that external demand held up well as overseas sales stayed robust and growth reached a three-month high, as quoted by PTI. The export momentum demonstrated the sector's ability to maintain growth momentum despite domestic headwinds, with the improvement in international business helping offset weakness seen in the domestic market. The manufacturing sector has been remarkably resilient, contributing nearly 20% of GDP, led by exports and inventory build-up, as noted by HSBC Global Investment Research. This resilience was driven by energy-market uncertainty prompting precautionary inventory build-up, especially in consumer goods, and lower US tariffs creating a window to accelerate non-oil exports ahead of potential Section 301 measures.
Input cost inflation moderated to a five-month low during June, though companies continued to report higher electricity, food, fuel and transportation costs, as reported by The Times of India. Prices charged by services firms rose at the weakest pace since November 2025 and remained below the long-run average. Consumer services recorded the highest inflation among monitored categories for both input costs and output charges, despite weaker increases than in May. The prices charged sub-index fell to a seven-month low, indicating that firms passed on less of the cost burden to clients. As per The Times of India, HSBC's Pranjul Bhandari noted that price pressures also continued to cool, with both input cost and output charge inflation moderating as geopolitical disruptions in the Middle East began to subside. The easing cost pressures curbed charge inflation, which helped support the overall services sector performance despite the challenging domestic conditions.
The HSBC Composite PMI was revised down to 57.1 in June from the previous reading of 59.3, coming in worse than the estimates of 57.4, according to the latest data published by S&P Global and HSBC Bank. This revision reflects the broader economic slowdown across both manufacturing and services sectors. The India Composite PMI Output Index fell to 57.1 in June from 59.3 in May, indicating the slowest pace of growth since March, as reported by Reuters. The India Composite PMI fell slightly to 57.1 in June from 59.3 in May, alongside softer sales volumes, slower job creation and more subdued pricing, as noted by HSBC's Pranjul Bhandari. Aggregate sales expanded at the weakest pace in three months, employment growth softened to its slowest level of 2026 so far, while external orders grew at their weakest pace in nearly two years. The weaker-than-expected PMI readings signal stronger-than-expected PMI readings tend to weigh on the Indian Rupee by raising concerns about growth and increasing the likelihood of a more accommodative RBI stance, while stronger readings would reduce expectations for monetary easing. However, two positive drivers for growth outside agriculture were highlighted: a pullback in oil prices toward pre-war levels should help lift the trade and transport sector, which accounts for about 15% of GDP, and easier financial conditions on the back of the FX package could help lubricate the financial sector, which makes up roughly 25% of GDP.
