Slowing Services Activity – Implications for Investors

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This article discusses moderation in India’s services sector activity based on the S&P Global India Services PMI report. Let’s analyze the key takeaways and investing impacts.

Analysis for Laymen:

PMI or Purchasing Managers’ Index reflects service sector business sentiment and activity levels based on a monthly survey. A reading above 50 denotes expansion.

India’s November 2022 Services PMI fell to 56.9 from 58.4 in October, hitting a 1-year low. This indicates some loss of growth momentum recently.

New business orders and output growth slowed across most service segments like finance, real estate etc. But activity levels still signify steady economic expansion as per S&P Global.

Original Analysis:

The cooling services sector activity epitomizes India’s economic transition towards a soft landing with controlled growth after excessively hot pandemic rebound phases. Lagging global demand, inflation concerns and RBI rate hikes are triggering this gradual normalization.

Yet optimism persists given strong festive tailwinds and resilient domestic consumption. The overall activity reading above 56 is still healthy. But investors must monitor segment-level slowdowns. IT services may underperform if global spending shrinks. Stable domestic demand can cushion any excesses.

Impact on Retail Investors:

Retail investors must align sector/stock exposures to India’s economic cycle. Rate-sensitive sectors like auto, real estate might lag now but will revive with easing inflation. Defensive spaces like pharma, FMCG can outperform temporarily.

Within services, segment leaders in software, financials, retail with pricing power can weather sluggishness better. Investors should stay invested in quality names while avoiding speculation in small-caps riding only momentum.

Impact on Industries:

Moderating services activity drags markets but doesn’t significantly alter India’s robust medium-term economic prognosis. The flourishing start-up ecosystem underscores potential.

But near-term demand outlook is cautious across hotels, transport, construction, real estate. Hospitality, travel can still benefit from revenge tourism tailwinds. Export-linked IT services face global risks though. Manufacturing can gain from China+1 realignment and policy incentives to localize electronics/telecom manufacturing in India.

Overall, investors must differentiate between temporarily sluggish sectors versus structurally promising spaces while allocating capital rather than paint all industries with the same brush.

Long Term Benefits and Negatives:

The very measured cooling of Indian economic activity sets up a sturdy foundation for the next leg of expansion within a sustainable range rather than overheating. It balances robust consumption with taming inflation.

But global linkages also transmit external weaknesses. Protracted global slowdown can constrain Indian services too. Plus, unemployment and uneven job creation remains a chronic challenge – poor income growth can hurt domestic spending.

Short Term Benefits and Negatives:

In the near term, calibrated demand moderation helps ease price pressures and sets up RBI to pivot to neutral policy stance by mid-2023. This will drive the next capex renewal cycle.

However, until inflation tangibly falls, rate sensitives like housing and auto will continue to face purchase deferments due to higher financing costs in the interim.

Gainers: Infosys, ICICI Bank, Titan

Losers: Oberoi Realty, IRCTC, Indigo

Infosys & TCS: Defensive IT stocks become recession shelters.

ICICI: Healthy retail loan growth cushions sector.

Titan: Strong brand and festive jewelry demand.

Oberoi Realty: Property sector hit by higher home loan rates.

IRCTC: Travel still recovering to pre-pandemic highs.

Indigo: Input cost pressures may squeeze margins.

Additional Insights:

India’s demographics, digitization tailwinds, policy thrust on manufacturing and exports make its structural consumption story compelling. Therefore, investors should utilize market volatility to accumulate quality names across rate sensitives, defensives and structural themes.


The services slowdown doesn’t undermine India’s economic promise. Investors should align exposures to areas gaining from China+1 realignment, self-reliance tailwinds in telecom & electronics manufacturing, and the start-up wave while tempering expectations from acute pandemic beneficiaries across discretionary consumption.

Proper Citation:

ET Bureau. “Nov Services Activity at 1-yr Low as New Orders & Output Shrink.” The Economic Times

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