India's service sector sentiment dips to 31-month low: IHS Markit

India's services sector witnessed contraction in September as new business orders fell for the first time since early 2018 business optimism dropped to its lowest in two-and-a-half years, according to IHS Markit India Services Purchasing Managers' Index (PMI) released on Friday.

The September data showed outright contractions in new business intakes and output as lacklustre client demand weighed on the performance. Concurrently, business confidence sank to its lowest level in 31 months while job creation moderated.

The latest results also highlighted subdued inflationary pressures in the sector with input costs rising at the slowest rate in over two-and-a-half years.

At 48.7 in September, the IHS Markit India Services Business Activity Index posted inside contraction territory for the first time in three months. The headline figure was down from 52.4 in August and fell to its lowest mark since February 2018.

Panellists indicated that the downturn stemmed from weak demand, competitive pressures and challenging market conditions.

New work intakes contracted in September, following an 18-month sequence of expansion. Where a reduction was reported, firms mentioned subdued demand conditions, unfair pricing among competitors and economic woes.

Indian services companies were able to secure new work from external markets. The increase in international orders was the seventh in consecutive months, with growth accelerating from August.

"The bad news of a cooling manufacturing sector was compounded by an outright services downturn in September," said Principal Economist at IHS Markit Pollyanna de Lima.

"As a result, private-sector output in India contracted for the first time since February 2018. This reflected a decline in sales, albeit fractional, which restricted employment growth. Worryingly, business sentiment sank to a 31-month low."

However, private sector employment continued to rise but the pace of expansion softened to a three-month low. Marginal increases were evident in the manufacturing and service categories.

IHS Markit is a world leader in critical information, analytics and solutions for the major industries and markets that drive economies worldwide.