India's services sector experienced a modest cooling in February, with growth indicators pointing to softer demand even as pockets of resilience emerged, according to a private-sector survey. The HSBC India Services Purchasing Managers' Index, prepared by S&P Global, declined to 58.1 in February from 58.4 in January, below the preliminary estimate of 58.4. The 50-mark distinguishes expansion from contraction.
A central gauge of demand - new business - rose at its weakest rate since January 2025. Firms reported that intensifying competition among service providers held back order books despite stepped-up marketing activity. The report noted, however, that international sales were a relative bright spot, increasing at the fastest pace since August as companies recorded stronger demand from overseas clients.
Cost pressures tightened notably. Service providers registered the steepest increase in operating expenses in two-and-a-half years, with higher food prices cited as the primary driver, alongside rising energy and labour costs. In response, many companies passed much of the added cost burden on to customers, resulting in output prices rising at the fastest rate in six months.
The release also described a new inflation reading computed under a revised data series. That maiden reading showed inflation accelerating to 2.75% in January, bringing the measure back inside the central bank's 2%-6% target band for the first time in five months. The revised series adjusts component weightings - for items such as food and housing - and uses an updated base year of 2024 to better capture changing consumption patterns.
On the labour front, employment in the services sector increased for a second consecutive month, with hiring accelerating from January as firms positioned themselves to meet current and anticipated operational needs. Sentiment among service providers also improved: business confidence jumped to a one-year high as companies expected higher demand and potential benefits from their marketing initiatives.
When combined with manufacturing data, the overall private-sector composite PMI rose to 58.9 in February from 58.4, marking the quickest pace of private-sector expansion in three months. The survey paints a picture of an economy where demand growth is uneven - domestic orders are losing momentum while international demand, price pressures, and hiring trends remain important influences on near-term performance.
Brief analysis: The February readings suggest that service providers are operating in a more competitive domestic environment even as export opportunities and staffing needs support activity. Rising input costs have prompted firms to increase selling prices, and confidence indicators point to cautious optimism about future demand.