India's dominant services sector hit 10-month low in September

Commenting the survey, Pranjul Bhandari, chief India economist at HSBC, said that India’s services sector expanded at a slower pace in September with headline business activity Index fell below 60 for the first time in 2024, but we noted that at 57.7, it was still much above the long-term average. "The new business index followed a similar trajectory as the headline figure, indicating the possibility of softer output growth in the coming months," Mr Bhandari said.

"Services companies’ margins have likely been squeezed further, as prices charged rose at a slower pace when input cost inflation intensified. A long period of robust new business growth has led to strong labour demand," the economist added.

The survey further noted that several panelists attributed the increase in output to new business gains, positive demand trends and investment in technology. "Growth was reportedly curbed by fierce competition, cost pressures and changes in consumer preference (i.e., switch to online services). Similarly, new business intakes expanded sharply at the end of the second fiscal quarter, but the pace of growth retreated to a ten-month low," the survey showed.

"Where an increase was noted, the survey participants remarked on healthy demand conditions. Those that experienced challenges commented on fresh entrants and greater competition. Looking at more granular data, Finance & Insurance led widespread increases in both output and new orders at the sub-sector level. One factor that constrained total sales growth was a softer increase in new export orders. The rate of expansion moderated to the weakest in 2024 so far. Still, some firms noted gains from Asia, Europe, North America and the Middle East," the survey added.