India’s services sector saw a noticeable slowdown at the end of 2025, with growth easing in December due to weakening demand and a slowdown in hiring. A recent monthly survey revealed that the HSBC India Services PMI Business Activity Index declined to 58.0 in December from 59.8 in November, marking the slowest growth rate in nearly a year. While the sector remains in expansion territory, the decrease in new business inflows and output growth raises concerns about future performance. On a positive note, firms reported an increase in overseas orders, especially from regions such as Asia and North America.
Decline in Business Activity Index
The HSBC India Services PMI Business Activity Index, a crucial indicator of the sector’s health, fell to 58.0 in December, reflecting a slowdown in growth. This figure is the lowest expansion rate since January 2025. According to PMI methodology, a score above 50 indicates growth, while a score below signifies contraction. The survey indicated a significant slowdown in both new business inflows and overall output growth during December. Despite continued operations in expansion territory, the decline in growth rates raises concerns about the sector’s momentum as it enters the new year.
Weakened Business Confidence
Though the expansion continues, business confidence among service providers has notably weakened. The sentiment index dropped to its lowest level in nearly three-and-a-half years, reflecting increasing concerns over market uncertainty and exchange rate fluctuations. Pollyanna De Lima, an economics associate director at S&P Global Market Intelligence, commented that while the service sector performed well in December, the decline in various indicators may imply a moderation in growth as 2026 approaches. Companies remain optimistic about future business activity, but the decline in sentiment suggests a cautious outlook in light of external challenges.
External Demand Remains Strong
Positively, external demand for Indian services showed resilience, with firms reporting an increase in overseas orders. This growth was particularly driven by heightened demand from regions such as Asia, North America, the Middle East, and the UK. The survey indicated that new export orders rose substantially in December, providing a silver lining in an otherwise slowing domestic market. Additionally, price pressures within the services sector remained subdued, with only mild increases in input costs and output charges. This benign inflation environment could enable service firms to compete effectively and potentially generate more jobs in the future.
Broader Private Sector Slowdown
The slowdown in the services sector was echoed in the broader private sector, where output growth fell to an 11-month low. The HSBC India Composite PMI Output Index decreased to 57.8 in December from 59.7 in November, indicating slower activity across both manufacturing and services. This decline in growth rates coincided with stalled hiring activity, with some service providers even reporting marginal job losses. Despite these challenges, private sector firms maintained a sense of optimism regarding future growth prospects, although overall sentiment hit a 41-month low, suggesting a cautious outlook as the new year commences.
Digihunt is not a financial advisor and this is not investment advice.