India's services sector growth slows to over 4-year low in July on softer demand

India's dominant services sector expanded at its slowest pace in more than four years in July as softer demand, intense competition and fewer client enquiries weighed on business activity, according to a monthly survey.

The seasonally adjusted HSBC India Services PMI Business Activity Index fell to 53.3 in July from 57.4 in June, marking the weakest pace of expansion in 53 months.

However, the index remained above the 50-mark that separates expansion from contraction, indicating that the sector continued to grow.

According to the HSBC India Services PMI survey compiled by S&P Global, new business inflows also grew at the slowest pace since February 2022 as firms cited "fierce competition, fading demand, softer market conditions and order postponements" as factors constraining growth.

Despite the slowdown in domestic demand, survey participants reported stronger demand from clients in the UAE, the UK and the US, with export orders growing faster than total sales.

Employment growth improved from a six-month low in June, although the increase remained modest, with only 6% of firms reporting higher payrolls while 92 per cent indicated no change in staffing levels.

Input cost inflation eased to its lowest level in six months amid softer increases in fuel, labour, material, technology and transportation costs.

However, companies raised selling prices at the fastest pace since April, helping improve profit margins.

Pranjul Bhandari, Chief India Economist at HSBC, said the services sector "continued to expand in July, albeit at a slightly slower pace, as new business growth eased in both domestic and export markets after several months of strong performance."

"Hiring showed a moderate rebound, while profit margins improved as input costs softened and firms increased their selling prices," she added.

The survey also showed that business confidence weakened to a seven-month low as companies remained cautious despite expectations of better demand, improved market conditions, competitive pricing strategies and higher inbound tourism in the months ahead.

The HSBC India Composite PMI Output Index, which combines manufacturing and services, declined to 54.3 in July from 57.1 in June.