India's February services PMI eases to 60.6 on low business confidence

India's service sector continued to grow during February as positive demand trends supported sales and business activity. Growth rates slowed since January, though remained historically substantial. The latest HSBC PMI also showed the second-weakest cost pressures in the sector since August 2020 and the softest increase in selling charges for two years. 

The seasonally adjusted HSBC India Services Business Activity Index registered 60.6 in February, down from 61.8 in January. Despite having slipped, the headline index was comfortably above the neutral mark of 50.0 and signalled a sharp rate of expansion that was well above the series history (since December 2005). 

Companies created jobs on the back of rising workloads, but the easing of capacity pressures and lower confidence towards the outlook dampened employment growth. 

Granular data showed that business activity increased across all parts of the service sector. Finance & Insurance saw the strongest pace of growth by a considerable margin, with the slowest rise registered in Real Estate & Business Services.

Ines Lam, Economist at HSBC, said: "India's services PMI suggests that the pace of expansion in the services sector eased in February from January. Due to a slowdown in growth in new orders and output, services companies' outlook for future business activity, while remaining strongly positive, weakened slightly. Prices charged for services rose at the slowest rate in 24 months as input prices inflation moderated." 

February data highlighted an upturn in demand across the service sector, with inflows of new business expanding for the thirty-first month running. That said, like for output, the rate growth softened from January's recent high whilst remaining well above its long-run average. 

New business from abroad placed with services firms in India rose for the thirteenth successive month. Survey participants reported gains from Australia, Asia, Europe, the Americas and UAE. Collectively, international sales expanded at a solid rate that was among the best in the nine-and-ahalf-year series history.

Aggregate output rises at slower but still sharp rate

With both manufacturing production and services activity in India increasing during February, there was a further upturn in private sector output. The HSBC India Composite PMI Output Index slipped from a six-month high of 61.2 in January to 60.6, indicating a softer but sharp rate of expansion.

Growth of private sector sales likewise remained sharp in spite of softening since January. Rates of expansion were broadly similar at manufacturers and services firms, though the former registered an acceleration and the latter a slowdown.