India's Services Sector Growth Eases Slightly in March Amid Softer Demand

The services sector in India experienced a slight moderation in March, as the HSBC Services PMI slid to 58.5 from 59.0 in February. Despite this minor downturn, the index remained comfortably above the 50-mark that delineates growth from shrinkage, indicating that the sector continues to swell, though at a less robust rate than in some recent months. The final figure also bested the not overly ambitious preliminary estimate of 57.7, reflecting a degree of underlying strength in demand.

New business volumes, especially from domestic markets, continued to expand in March but at a reduced pace compared to February. Demand from international markets is the real weak spot in all of this, with new orders from abroad barely showing any growth at all, orders rising at the slowest rate in more than a year. If looking for signs of a softening economy, these would be in the top three. And they are.

Easing Price Pressures and Weaker Sentiment

Companies indicated that input costs rose at the slowest pace seen in five months, and, with vigorous competition in the marketplace, this has meant that any increase in prices that firms were able to charge has been minimal. In fact, the increase in selling prices was the smallest that has been seen since September 2021. This is not a good development for the bottom line.

This environment of softer demand and fierce market competition led to diminished business confidence. The future activity index slipped to a seven-month low, suggesting that a number of firms are taking a more conservative approach to the next 12 months. Hiring was almost nonexistent in March, with the services sector and the manufacturing sector together providing the fewest new jobs in nearly a year.

Rate Cut Expectations Grow

Even with the slowdown, the overall private sector was still going strong. The HSBC India Composite PMI, which encompasses both services and manufacturing data, rose to 59.5 in March, the highest it had been in seven months, and it was once again driven by a robust performance from the manufacturing sector.

As inflation recedes and confidence falls, the Reserve Bank of India might think about making policy easier to back up economic momentum. The markets think a potential 25 basis point rate cut could happen at the next RBI policy meeting, set for April 9, particularly since the economy as a whole looks to have grown at its slowest pace in four years over the last fiscal year.

Even though growth continues, intensifying rivalry, hesitant recruitment, and worldwide apprehension imply a somewhat slower route for India's service sector over the approaching months. This is particularly true for business process outsourcing (BPO) firms, which cater mostly to clients in the United States and the United Kingdom.