Summary: Final PMI data for March indicate the Indian services sector cooled to a 14-month low, with demand dampened by the Middle East war even as export orders remained elevated and cost pressures intensified. Employment and business sentiment improved, but rising input inflation outpaced price increases charged to clients, squeezing margins.
The final HSBC India Services Purchasing Managers' Index (PMI), compiled by S&P Global, fell to 57.5 in March from 58.1 in February. That final reading was slightly above a preliminary estimate of 57.2. The drop marks the slowest monthly expansion for the sector in 14 months.
Survey respondents pointed to multiple headwinds restraining activity. Firms cited the Middle East war as weighing on domestic demand, business conditions and tourism, which together curtailed activity during the month. New business - a principal gauge of demand - rose at the slowest pace since January 2025, with companies reporting intensified competition and difficult market dynamics along with waning domestic demand.
Despite the domestic cooling, foreign demand remained robust. Growth in overseas orders climbed to the second-highest level recorded since that series was added to the survey in September 2014, surpassed only by June 2024. This divergence left exporters and internationally-facing service providers as pockets of stronger activity.
Cost dynamics showed notable strain. Input costs increased at the quickest rate in 45 months, reflecting heightened inflationary pressure on businesses. Firms raised prices to clients at the fastest pace in seven months, but selling prices lagged behind the pace of input cost inflation by the widest margin in almost three years. The survey indicated that services companies absorbed a portion of higher costs while passing some through to customers.
On the labour front, employment expanded for a third consecutive month and at the strongest rate since June 2025. Optimism among companies strengthened, reaching the highest level in nearly 12 years, as firms expected demand and market conditions to improve.
The moderation in services, when combined with manufacturing growth that fell to a near four-year low, pulled the Composite PMI down to 57.0 in March from 58.9. That composite reading represented the weakest pace of expansion in nearly three-and-a-half years, underscoring a broader cooling across the economy's activity gauges.
Key context retained from the survey:
- Final services PMI: 57.5 in March, down from 58.1 in February; preliminary was 57.2.
- New business growth slowed to the weakest since January 2025; firms reported competition and fading domestic demand.
- Foreign orders rose to the second-highest level since that measure began in September 2014, behind only June 2024.
Implications noted in the data: Elevated input inflation and the gap between cost rises and selling price increases suggest margin pressures across the services sector, even as employment and sentiment improved. The combined slowdown across services and manufacturing reduced the Composite PMI to its weakest expansion rate in roughly three-and-a-half years.