Services activity slips to a two-year low in January

Services sector activity grew in January at the slowest pace in two years as demand cooled but stayed at historically high levels amid substantial hiring activity, a private survey showed.

The seasonally adjusted HSBC India Services Business Activity Index declined in January by 280 basis points to 56.5, its lowest level since November 2022, from 59.3 in December. One basis point is one-hundredth of a percentage point.

Prices and cost burdens rose broadly to the same extent as in December, and firms reported greater payroll expenses.

Charge or cost-push inflation–overall price levels rise due to increases in production costs–ticked higher in January.

“India’s services sector lost growth momentum in January, although the PMI remained well above the 50-breakeven level,” said Pranjul Bhandari, chief India economist at HSBC. “The business activity and new business PMI indices eased to their lowest levels since November 2022 and November 2023, respectively.”

Bhandari said new export business partly countered the downtrend and continued to rebound from a dip in late 2024. This aligns with official data showing India’s services exports shinning in December and capturing a larger share of global trade.

The survey findings indicated that as India’s private sector economy lost some growth momentum in January, a quicker increase in factory output was outweighed by weaker growth in the services sector, which was more than offset by a softer expansion in services activity.

The HSBC India Composite Output Index (calculated by factoring in the output indexes of the manufacturing and service sectors) fell from 59.2 in December to a 14-month low of 57.7.

Several participant companies in the service sector reported output growth supported by favorable demand conditions, new business wins, and investment in technology.

Overall, new orders continued to increase strongly, but the rate of expansion softened to the weakest in 14 months due to intense competition.

Survey participants reported an increase in clients in Asia, Europe, the Middle East, and the US. The overall rate of expansion in the international market hit a five-month high.

New orders led to capacity expansion, and service providers were compelled to recruit new employees. The survey added that the rate of job creation accelerated from December and was among the fastest seen since data collection started in December 2005.

The sales volume expanded for the 37th month in January to the greatest extent since May 2024, supported by client demand.

The service providers are confident that the rise in business activity will continue for the coming 12 months.

Rising staff costs and greater food prices added to the cost burden on service companies. With demand resilience, prices charged for providing Indian services increased further at the start of 2025. Having accelerated from December, the rate of charge inflation was marked and above its trend, added the survey.

A pick-up in growth of factory orders contrasted with the weakest rise in services sales since November 2023 highlighted the survey.

For the third month since October, services companies reported more substantial cost pressures than goods producers. Across the private sector, the latest rise in input prices was the least pronounced since October 2024 and below its long-run average.

As for selling charges, the overall inflation rate was broadly similar to December, as a slowdown in goods producers offset an intensification in service providers.