Strong Demand Continues
India's services sector showed robust expansion in September 2026, marking its best performance in three months. The HSBC India Services Purchasing Managers' Index (PMI), a key indicator of economic health, rose to 55.2 from 54.1 in August. A reading
above 50 signifies expansion. This growth was largely fueled by strong domestic demand, with companies reporting a sharp increase in new orders. The finance and insurance sectors, along with consumer services, were standout performers, seeing the strongest growth in both business activity and sales. Firms specifically noted increased demand for digital solutions, food, loans, software, transportation, and travel services. While the monthly figure is strong, the average growth for the July-September quarter was the weakest since early 2022, suggesting a mixed but overall positive environment.
A Cautious Hiring Outlook
The sustained demand prompted service providers to increase their workforce in September to manage rising order books and new projects. However, the pace of job creation softened compared to August. This reflects a broader trend of cautious optimism in the Indian job market. According to a ManpowerGroup survey for the third quarter of 2026, India's hiring outlook remains the strongest in the world, but employers are adopting a more measured approach. While nearly 60% of employers expected to increase hiring in the quarter, this was down from previous periods. The slowdown in hiring was most notable in the real estate and business services sub-sectors. Interestingly, the hiring boom in 2026 has been led by non-IT sectors like hospitality, BPO/ITES, and education, a shift from the IT-dominated trends of previous years.
Exports: A Mixed Picture
India's services exports have been a consistent source of strength, and international demand continued to improve in September, with notable gains from Germany, the UAE, the UK, and the US. However, the growth rate for new export business has slowed to its weakest pace in nearly three years, indicating a heavier reliance on domestic demand to fuel the sector's expansion. According to the latest available RBI data, services exports in August 2026 stood at $35.47 billion, a 13.7% year-on-year increase. However, services imports grew even faster at 21.4%. For the financial year starting in April 2026, total services exports between April and July reached approximately $145 billion, maintaining a healthy trade surplus. The government remains confident in its target of reaching $1 trillion in combined goods and services exports for the 2026-27 financial year.
Business Confidence on the Rise
Looking ahead, optimism within the services sector has strengthened. Business confidence reached a three-month high in September, supported by resilient demand and an increase in customer enquiries. According to the surveys, just under 16% of companies expect their business activity to increase over the next 12 months, with the remainder anticipating stable conditions. This forward-looking sentiment is also reflected in the RBI's surveys on business expectations. A key factor boosting confidence is the easing of inflationary pressures. Input cost inflation for service providers fell to a 10-month low in September, reducing the pressure on firms to pass on higher costs to consumers. This suggests a more stable operating environment for businesses heading into the final quarter of the year.
