India’s services sector recorded a stronger performance in September, with the HSBC India Services Purchasing Managers’ Index rising to 55.2 from 54.1 in August. The latest reading marked the fastest expansion in services activity in three months and pointed to an improvement in business conditions during the final month of the July to September quarter.
The September improvement was mainly supported by stronger domestic demand and a sharp increase in new business orders. According to the PMI survey, companies across several service categories reported better demand during the month. These included digital solutions, food services, insurance, loans, software, transportation, tours and travel.
A Purchasing Managers’ Index reading above 50 indicates expansion, while a reading below 50 indicates contraction. The services PMI has therefore remained in expansion territory, although the pace of growth has varied during recent months.
Despite the improvement recorded in September, the broader quarterly picture remained less encouraging. The average services sector growth during the July to September quarter was the weakest since the three months ended March 2022. This indicates that the stronger September performance was not enough to fully offset the relatively softer activity recorded earlier in the quarter.
Domestic demand continued to provide important support to the services economy. Companies reported stronger demand for a range of consumer and business-related services. Finance and insurance, along with consumer services, recorded some of the strongest increases in activity and sales.
New business orders also increased at the fastest pace in three months. The improvement in new orders suggests that domestic customers continued to provide a relatively stable source of demand for Indian service providers.
International demand also improved during September, with companies reporting stronger business from markets including Germany, the United Arab Emirates, the United Kingdom and the United States. However, the pace of growth in new export business moderated and reached its weakest level in nearly three years.
The moderation in export demand is an important factor for the services sector because India has a large and globally connected services industry. Software, business services and other professional services contribute significantly to the country’s export earnings. A slower increase in international orders could therefore affect the pace of expansion if the trend continues.
Employment conditions showed some improvement during September. Stronger order books and projects in the pipeline encouraged service providers to add workers. However, the pace of employment growth was slower than in August. Softer hiring in areas such as real estate and business services contributed to the moderation.
Cost pressures provided some positive news for service companies. Input cost inflation declined to its lowest level since November 2025. Companies continued to report higher costs for some items, including food supplies, fuel, insurance premiums, maintenance, software and technology resources, but the overall pace of input price increases eased.
The moderation in input costs also reduced the pressure on companies to increase prices charged to customers. The rate of increase in selling prices slowed to its lowest level since June. This could provide some relief to businesses and customers if the moderation in cost pressures continues.
Business confidence among services companies improved to a three month high. Firms remained relatively positive about future activity, supported by resilient demand and an increase in customer enquiries. However, confidence remained subdued compared with historical levels. Only around 16 percent of surveyed companies expected their output to increase over the following 12 months, according to the survey.
The broader private sector also recorded an improvement in September. The HSBC India Composite PMI Output Index, which combines manufacturing and services activity, increased to 55.9 from 54.3 in August. The reading indicated the strongest expansion in private sector output since June.
However, similar to the services sector, the composite PMI’s quarterly average remained weaker. The July to September quarter recorded the weakest average expansion since the quarter ended March 2022. This suggests that the improvement seen toward the end of the quarter has not yet translated into a stronger overall quarterly growth trend.
The latest PMI data therefore present a mixed picture for the Indian economy. The monthly improvement in September indicates that domestic demand remains resilient and that businesses are seeing stronger new orders. At the same time, weaker quarterly momentum, slower export growth and moderating employment growth highlight some challenges facing the services industry.
The performance of the services sector will remain important for India’s broader economic outlook because services account for a major share of economic activity and employment. Continued strength in domestic consumption could help sustain growth, while a recovery in international demand could provide additional support.
For now, the September PMI reading indicates that India’s services sector ended the second quarter of the financial year on a stronger note. However, the weak quarterly average shows that the improvement needs to continue for a longer period before it can be considered a sustained acceleration.
Businesses and policymakers are likely to monitor new orders, export demand, employment, input costs and business confidence in the coming months. These indicators will provide important signals about whether the services sector can maintain its current momentum.
Overall, the rise in the HSBC India Services PMI to 55.2 in September reflects stronger domestic demand and improved business activity. However, the weakest quarterly growth since early 2022 shows that the sector still faces challenges in maintaining a consistent pace of expansion.
