India's Services Sector Stages Impressive Recovery in January 2026
New Delhi: India's services sector has demonstrated remarkable resilience by bouncing back strongly in January 2026, following an 11-month low recorded in December. According to a comprehensive private survey released on Wednesday, this recovery has been primarily fueled by increased new business intake and robust output growth, driven by sustained demand across multiple segments.
PMI Shows Sustained Expansion Momentum
The HSBC India Services Purchasing Managers' Index (PMI), meticulously compiled by S&P Global, climbed to 58.5 in January from 58.0 in December. This marks a significant milestone as the index has consistently remained above the crucial 50-point threshold that separates expansion from contraction for over four consecutive years. This sustained performance underscores the sector's enduring strength despite facing various economic headwinds and global uncertainties.
Growth Drivers and Sector Performance
While the services sector has regained its growth trajectory, the survey reveals that input costs and selling prices have increased at a more measured and controlled pace. Businesses across the spectrum have maintained an optimistic outlook regarding future prospects, reflecting confidence in the sector's continued expansion.
Granular analysis of the data indicates that the finance and insurance segment emerged as the top performer in growth rankings for both output and new orders. This achievement is particularly noteworthy considering this segment was the only one to experience slowdowns since December last year, demonstrating its remarkable recovery capacity.
Domestic and International Demand Dynamics
The January data highlights that the primary source of new business gains originated from the robust domestic market. However, international orders also registered solid growth, with the pace of expansion reaching its most pronounced level in three months. This dual demand structure provides a balanced foundation for sustained sector growth.
"India's services PMI rose to 58.5 in January, up from 58.0 in December, signalling sustained momentum in the sector," emphasized Pranjul Bhandari, chief India economist at HSBC. "Robust output growth was driven by a steady influx of new orders, including increased international demand from South and Southeast Asia."
Business Confidence and Employment Trends
Business confidence levels climbed to a three-month high, supported by multiple factors including operational efficiency gains, effective marketing strategies, and successful acquisition of new clients. This positive sentiment reflects the sector's adaptive capabilities and strategic positioning in the global market.
Despite the significant scaling up of services sector activity in January, job creation progress remained somewhat marginal. However, the rising intake of new work prompted service providers across India to resume hiring activities, indicating potential employment growth in subsequent months.
Composite Performance and Price Trends
The HSBC India Composite PMI Output Index also showed improvement, rising from December's 11-month low of 57.8 to 58.4 in January. This composite strengthening reflects solid demand growth across both manufacturing and services sectors, creating a balanced economic expansion.
While input costs increased at their fastest pace since September last year, the survey noted that this growth occurred at a moderate pace that remains below the long-run series trend. "While input and output prices are rising, they remain fairly mild by historical standards," Bhandari added, providing context to the pricing dynamics.
External Factors and Global Context
Beyond domestic factors, external risks continue to persist, creating some uncertainty in the outlook for India's services industry. The sector has faced challenges from tighter US spending patterns and rising protectionism, which have slowed deal closures and squeezed margins for Indian technology firms.
The anticipated conclusion of the India-US trade deal is expected to provide significant momentum to the services industry. This development comes alongside India's impressive year-on-year GDP growth, which rose to a six-quarter high of 8.2% in Q2 FY26 from 7.8% in Q1 FY26, defying expectations of an economic slowdown.
Expert Analysis and Long-term Perspective
"As far as PMI services is concerned, its January 2026 level of 58.5 is well above its long-term average of 53.2," observed D.K. Srivastava, chief policy adviser at EY India. "Services, therefore, are continuing to lead India's growth momentum."
Srivastava further noted evidence of a steady stream of new orders originating from South and Southeast Asia for services provided by Indian companies. This international demand has been supported by strategic initiatives including effective marketing campaigns, technology investments, and systematic client acquisition programs.
The services sector recovery coincides with growth in India's manufacturing sector during January, which successfully overcame challenges posed by US tariffs. While these tariffs may show some impact in third quarter GDP numbers, the pressure is expected to substantially ease subsequently with better GDP expansion following the trade deal implementation.
The HSBC India Services PMI survey draws on comprehensive responses from approximately 400 companies across diverse sectors including consumer services (excluding retail), transport, information and communication, finance, insurance, real estate, and business services, providing a representative view of the sector's performance.
