India’s dominant services sector growth remained robust but slackened to a 10-month low in September as demand slowed, an HSBC survey said on Friday.

The HSBC final India Services purchasing managers’ index (PMI), compiled by S&P Global, fell to 57.7 in September from a five-month high of 60.9 in August and was below a preliminary estimate of 58.9.

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For over three years, the index has stayed above the 50-mark separating expansion from contraction.

The new business sub-index — a gauge for overall demand — slipped to its lowest since November but was still above its historical average. International demand rose at its slowest pace this year.

Businesses grappled with competition, evolving consumer preferences shifting toward online services, and escalating cost pressures. Despite these challenges, the sector continued to expand, with robust domestic demand. Finance & Insurance recorded the highest increases in both output and new orders.

“The headline Business Activity Index fell below 60 for the first time in 2024, but we note that at 57.7, it was still much above the long-term average. The new business index followed a similar trajectory as the headline figure, indicating the possibility of softer output growth in the coming months,” said Pranjul Bhandari, Chief India Economist at HSBC.

Cost inflation accelerated from August as prices of electricity, food and other materials increased. However, firms passed on extra costs to clients at the slowest pace since February 2022.

Services companies’ margins have likely been squeezed further, as prices charged rose at a slower pace when input cost inflation intensified. A long period of robust new business growth has led to strong labour demand, Bhandari added.

On the employment front, the services sector continued its upward trajectory, with businesses citing strong demand and new business gains as driving factors for increased hiring.