The Indian service sector demonstrated continued strength in December 2025, but recent data signals a potential moderation in growth as the year closed. The HSBC India Services PMI, released on Tuesday, revealed a slowdown in both new orders and business activity, hitting an 11-month low. While companies remain optimistic about the future, overall business sentiment has cooled, raising questions about the pace of expansion heading into 2026. This article will delve into the details of the report and explore the factors influencing this shift in the Indian services landscape.
HSBC India Services PMI: A Slowing Momentum
The seasonally adjusted HSBC India Services PMI Business Activity Index registered 58.0 in December, down from 59.8 in November. This figure, while still indicating a substantial increase in output, represents the slowest rate of expansion since January 2025. The core of the slowdown lies in the easing of growth in incoming new work, which also reached an 11-month low. This suggests a softening in demand, potentially influenced by broader economic conditions and global uncertainties.
Key Findings from the December Report
The report highlighted several key trends:
- Slower Growth: Both new orders and output expansion slowed down significantly.
- Employment Stagnation: Companies largely refrained from increasing their workforce, indicating caution despite the ongoing business activity. This is a notable point, as previous months saw modest job creation within the sector.
- Inflationary Pressures: Input costs and output charges saw quicker increases compared to November, though they remained below long-run averages. This suggests that while inflation isn’t rampant, it’s a factor companies are beginning to consider.
- Export Resilience: Interestingly, services exports bucked the trend, experiencing a greater increase in December. This could be attributed to a weaker rupee making Indian services more competitive internationally.
Declining Business Sentiment in India’s Service Sector
Despite the continued expansion, the overall level of business confidence has been steadily declining. The December report showed sentiment at its lowest point in nearly three-and-a-half years, almost nine points below its long-run average. This decrease in optimism is linked to heightened market uncertainty and concerns surrounding exchange rate fluctuations.
Companies are understandably anxious about the unpredictable global economic climate. The recent depreciation of the Indian rupee, while potentially benefiting exports, also raises the cost of imported goods and adds to the overall uncertainty. This cautious outlook is reflected in the reluctance to hire new staff, as businesses prefer to maintain flexibility in the face of potential challenges. The economic outlook is therefore becoming more nuanced.
Inflation and Pricing Strategies
While the service sector continues to thrive, the report notes a subtle rise in inflationary pressures. Input costs increased at a faster pace in December, and this was partially passed on to consumers in the form of higher output charges. However, Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence, emphasized that the inflation environment remains “benign.”
This relatively controlled inflation provides a window of opportunity for service firms. If they can manage their expenses effectively, they can avoid aggressive price hikes, maintain competitiveness, and potentially stimulate further sales and job creation. The ability to navigate these inflationary pressures will be crucial for sustained growth in the coming months.
The Role of Services Exports
A bright spot in the December PMI data was the strong performance of services exports. The report indicated a greater increase in export orders compared to the overall slowdown in domestic demand. This suggests that Indian service providers are successfully capitalizing on global opportunities and mitigating some of the negative impacts of domestic headwinds.
The weaker rupee likely played a role in boosting the competitiveness of Indian exports. However, it also highlights the importance of diversifying revenue streams and focusing on international markets to ensure resilience in the face of economic fluctuations. This focus on export growth is a positive sign for the Indian economy.
Looking Ahead to 2026
Despite the recent softening, Indian services companies remain confident about future business activity. However, the decline in overall sentiment for the third consecutive month is a cause for observation. The report suggests that a moderation in growth is likely as we move into 2026.
The key to sustaining growth will be managing inflationary pressures, navigating market uncertainty, and capitalizing on opportunities in the global market. Continued monitoring of the HSBC India Services PMI, alongside other economic indicators, will be essential for understanding the evolving dynamics of the Indian service sector and formulating appropriate policy responses.
Ultimately, the December 2025 HSBC India Services PMI paints a picture of a sector that is still expanding, but at a slower pace and with a more cautious outlook. Staying informed about these trends is vital for businesses, investors, and policymakers alike.
