Service sector activity slightly eases in February; exports pick up: PMI

India’s services sector lost a bit of momentum in February, as growth in new business slowed to its weakest pace in 13 months and operating costs climbed to a two-and-a-half year high, according to a private survey released Wednesday.

Even so, services activity remained strong. The HSBC India Services Business Activity Index eased slightly to 58.1 in February from 58.5 in January. It stood at 59 in February 2025. Survey participants attributed continued expansion to efficiency gains, favourable underlying demand, rising sales and technology projects.

A reading above 50 indicates expansion in activity, while below that shows contraction.

“India’s Services PMI registered 58.1 in February, largely unchanged from January’s 58.5, signalling another month of robust expansion in the sector,” said Pranjul Bhandari, chief India economist at HSBC.

Manufacturing, meanwhile, gathered pace. The manufacturing PMI rose to a four-month high of 56.9 in February from 55.4 in January, supported by strong domestic demand.

Overall, India’s composite PMI, which combines manufacturing and services, increased to 58.9 from 58.4.
“Overall, the composite PMI rose to 58.9, reflecting the fastest pace of private sector activity growth in three months, buoyed by strong momentum in manufacturing,” said Bhandari. Looking ahead, service providers expressed optimism about the coming year, with positive sentiment climbing to a one-year high. Companies cited marketing initiatives, concerted efforts to broaden scope and presence across existing and new markets as key drivers of confidence.

Although new orders in the services sector continued to rise, the pace slowed to a 13-month low. Some firms benefited from increased client enquiries and marketing, while others pointed to intensifying competition as a drag on growth.

Among the four sectors tracked, finance & insurance recorded the fastest increases in output and new orders, despite some moderation in expansion rates. Real estate & business services propped the rankings in those areas.

“While new order growth slowed to a 13-month low amid rising competition, service providers saw a notable pick-up in international sales and responded with increased hiring to meet operational needs,” said Bhandari.

International sales stood out as a bright spot, with firms reporting gains from markets including Canada, Germany, mainland China, Singapore, the UAE, the UK and the US. On average, export growth reached its strongest level since last August.

On the cost side, operating expenses rose at the sharpest rate in two-and-a-half years in February. Panellists cited food (cooking oil, egg, meat and vegetables) as the main source of cost pressures, along with greater spending on energy, labour and commodities.

Service providers also raised their own prices at the fastest pace in six months. Improved output expectations supported a quicker rise in employment, with job creation though still moderate exceeding its long-term average.

“Input and output price inflation accelerated, with firms passing higher expenses — particularly for food and labour — on to customers, yet business confidence climbed to its highest level in a year as companies looked to broaden their market presence,” noted Bhandari.