India Services PMI Hits 17-Month Low as Hiring Freezes

India's services sector, the largest contributor to gross value added, slowed sharply in June. The S&P Global India Services PMI fell to 57.8 from 59.8 in May – the lowest reading in 17 months. The composite PMI, which blends manufacturing and services, dropped to 57.1 from 59.3.

Both indices remain above the 50 expansion threshold. The direction is what matters for rate expectations.

“The loss of momentum points to more challenging market conditions and weaker demand, particularly at home,” said Pranjul Bhandari, chief India economist at HSBC. Her comment flags the domestic demand softening that the headline expansion masks.

Export orders were the bright spot. Inflows rose at the fastest pace in three months, with demand from Australia, Belgium, Canada, Germany, Malaysia, Nepal, Oman, Qatar, Singapore, the UAE and the US. External demand held up well, Bhandari noted. The home market, which generates the bulk of services revenue, did not.

Price pressures eased. Input cost and output charge inflation both moderated to the weakest since November 2025. “Geopolitical disruptions in the Middle East began to subside,” Bhandari said. Cooling inflation gives the Reserve Bank of India more room to consider a rate cut.

Hiring largely stopped. Service providers said payrolls were sufficient for current needs. Business sentiment for the next 12 months fell to a five-month low, below the historical trend. Companies are cautious, not alarmed. That caution is new.

Transmission through rates

The PMI data shifts the debate on RBI policy. The central bank has held the repo rate at 6.50% since February 2023, citing inflation risks. A softening services PMI, combined with moderating price pressures, weakens that argument. Fixed-income traders now see a higher probability of a rate cut at the August policy review, though October remains the base case.

The 10-year government bond yield closed at 6.93% on Friday. A July CPI print below 4.5% would push yields toward 6.80%, traders said. A break below 6.85% would trigger buying by domestic institutional investors who have been waiting for confirmation that growth is softening enough to force the RBI's hand.

Rupee and equities

Slower growth and the prospect of lower rates usually weigh on a currency. The rupee has stayed in a tight range near 83.50 against the dollar, supported by export strength and portfolio inflows into Indian equities. The RBI is also active in the spot market, smoothing volatility, two currency traders said. A rate cut without a hawkish tone could push the rupee to 83.80. A cut accompanied by a warning on inflation would keep the pair contained.

Equity markets have already started pricing a slower services environment. The Nifty 50 has fallen 2% from its June high. Financials, dependent on loan growth from consumption and services activity, are the most exposed. The Bank Nifty has underperformed the broader market by 1.5% in the past two weeks. IT stocks, which benefit from export demand, have held up better – the same divergence visible in the PMI data between domestic and external orders.

Commodities

India is a major consumer of crude oil and base metals. A sustained slowdown in services would reduce demand growth for diesel and jet fuel. Export strength offsets some of that loss. The oil market remains more focused on OPEC+ supply and global demand signals from the US and China than on a single month of Indian PMI data. The composite PMI's moderation is a data point, not a trend.

The next catalyst is June CPI, due next week. An inflation print below 4.5% would harden the case for an August rate cut. A print above 5% would keep the RBI on hold regardless of the growth slowdown. The PMI gives the doves a new argument. The inflation number will decide whether it is enough.