India’s services sector witnessed a strong rebound in February, with the HSBC India Services Purchasing Managers’ Index (PMI) rising to 59.0, up from 56.5 in January, which had been its lowest reading in over two years. The latest data, compiled by S&P Global, highlighted a surge in new business orders, both domestically and internationally, driving higher output and a notable rise in employment.

       Strong demand drives services sector rebound

       The services sector expansion was fuelled by increasing demand, particularly from international markets, which recorded its fastest growth in six months, according to the new export business index. As a result, firms continued to scale up operations, leading to one of the sharpest increases in employment since records began in December 2005. Businesses reported hiring full- and part-time workers to accommodate rising workloads and ease capacity pressures.

       Commenting on the service sector growth, Pranjul Bhandari, chief India economist at HSBC, said, "Job creation and charge inflation remained strong during February. Looking ahead, business sentiment remains broadly positive, but did slightly slip last month to its lowest level since August 2024."

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       Cost pressures remain a concern

       Despite the services sector’s overall strength, cost pressures remained a concern, the survey said. While firms reported higher expenses due to additional recruitment, salary hikes, and increased overtime payments, the overall inflation rate for input costs eased to a four-month low.

       The most significant cost pressures were noted in the consumer services segment, where rising expenses on food, materials, and packaging contributed to inflationary pressures.

       Manufacturing slows in Feb

       Indian manufacturers saw loss in new orders and slowed production momentum with February's PMI plummeting to a 14-month low of 56.3, data showed on Monday. The manufacturing PMI for the previous month had been 57.7.

       Growth in the services sector, however, pushed the overall Composite PMI for Feb to 58.8, from 57.7 last month.

       The Purchasing Managers' Index offers insights into the performance of the manufacturing and services sectors, helping investors assess business conditions and gain important context about the economic environment across different markets. A reading above 50 signals sector expansion, while a reading below 50 indicates contraction, and 50 reflects no change.

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