PMI: India's services exports bump may lose steam amid global economic gloom

New Delhi, June 4, 2025 — After several months of robust growth, India’s services exports are showing signs of slowing down, as highlighted by the latest Purchasing Managers’ Index (PMI) data and expert assessments. The global economic environment, shadowed by persistent inflation, slowing growth in developed markets, and geopolitical instability, is beginning to weigh on India's high-performing services sector, which has been a key driver of export momentum.

Cooling PMI Reflects Sluggish Global Demand

According to the S&P Global India Services PMI released on Wednesday, the index stood at 60.2 in May, down from 61.7 in April, signaling a moderation in the pace of expansion. While the reading still indicates growth (anything above 50 denotes expansion), the marginal deceleration is raising eyebrows, particularly for export-oriented services.

Notably, export orders—which had been surging earlier this year—have slowed down considerably. This is seen as a reflection of weak demand in key markets such as the United States, the United Kingdom, and the European Union, where economic activity remains fragile amid interest rate pressures and fiscal uncertainties.

Analysts Caution Against Overreliance on Services

"India's IT, business process outsourcing (BPO), and consultancy exports have held up remarkably well in recent quarters, but we are now seeing signs of fatigue," said Radhika Mehta, Chief Economist at Global Insight Advisors. "Much of the demand surge earlier was linked to post-pandemic digital transformation and outsourcing trends. However, with global firms tightening budgets, the pipeline of fresh contracts is drying up."

She added that while domestic demand remains healthy, India’s service exporters are highly exposed to cyclical downturns in the West. "This could lead to flat or even negative growth in services exports if global headwinds persist into the second half of 2025."

Sectoral Breakdown: IT and Finance Under Strain

The services sector has been a pillar of India’s economic resilience, contributing over 50% to GDP and powering foreign exchange earnings. Within the sector, IT and IT-enabled services (ITES) have led the charge, followed by financial services and consulting.

However, the current PMI report indicates a deceleration particularly in IT and financial services, which are most exposed to foreign clients. “We’ve seen clients in the US banking and insurance sectors cut back on discretionary IT spending,” said Anil Shah, Director of Business Strategy at a mid-sized IT firm in Bengaluru. “Renewal cycles are lengthening, and cost sensitivity is back in conversations.”

Rupee Advantage Not Enough Amid Dimming Demand

The rupee has remained relatively stable, with modest depreciation against the US dollar, which in theory should support export competitiveness. However, analysts note that currency tailwinds alone are insufficient in the face of shrinking order books.

“Even though the rupee is favorably positioned, exporters can't sell what buyers are unwilling to purchase,” noted Abhay Kulkarni, Senior FX Strategist at FinEdge Capital. “The global slowdown is not just a demand issue—it’s about uncertainty, where businesses are deferring investments and strategic partnerships.”

India's Services PMI Still Resilient in Domestic Context

Despite concerns around exports, the domestic services economy remains robust, buoyed by consumer demand, expanding digital infrastructure, and government-backed growth initiatives. Domestic order volumes and hiring in hospitality, logistics, and retail services continue to show upward trends.

The employment index within the PMI report showed mild improvement, suggesting that companies are still adding to their workforce, albeit cautiously. Price pressures, however, remain a concern, with input cost inflation rising for the third straight month, particularly in transport and utilities.

Investor Outlook: Cautious Optimism with Risk Warnings

Investors are advised to approach service sector equities with measured optimism. Large-cap IT firms with diversified portfolios and strong balance sheets may weather the storm better than mid-sized, export-reliant players.

“Investors should not panic but rebalance portfolios to reflect changing global dynamics,” said Meera Chopra, Head of Research at ValueMatrix Capital. “Sectors like domestic-focused fintech, edtech, and logistics may offer better risk-adjusted returns in the short term.”

Market analysts expect further clarity during the Q1 FY26 earnings season, especially from IT giants such as Infosys, TCS, and HCL Technologies, who will provide updated guidance in light of evolving macro conditions.

A Crucial Crossroads for Services Exports

India’s services exports are navigating a delicate phase. While the fundamentals remain strong, especially in the domestic economy, the sector’s export arm is facing headwinds that could persist if the global outlook remains bleak. Policymakers and industry leaders may need to pivot towards diversification, both in terms of service offerings and geographic exposure, to sustain momentum.