India's services demand outlook positive for Q3FY27, margin concerns persist: RBI
India's services sector is expected to maintain a positive demand outlook in Q3FY27, although business optimism has moderated compared with the previous quarter, with firms anticipating some easing in cost pressures but remaining less optimistic about selling prices and profit margins, according to the Reserve Bank of India's (RBI) latest Services and Infrastructure Outlook Survey.
The Reserve Bank of India's latest Services and Infrastructure Outlook Survey paints a mixed picture for India's services sector in the third quarter of fiscal year 2027. While demand is expected to remain strong, concerns over profit margins loom large. Business optimism has softened compared to the previous quarter, with firms anticipating some relief from cost pressures but remaining cautious about selling prices and profit margins.
In Q2FY27, the services sector showed signs of improvement, with increased turnover, full-time employment, and overall business conditions. However, firms reported heightened cost pressures and a muted outlook on profit margins. The central bank's survey indicates that services sector companies are cautiously optimistic about demand conditions in Q3FY27, but their confidence waned compared to the prior quarter.
At the same time, firms expect some easing in cost pressures but are relatively less optimistic about selling prices and profit margins.
Looking ahead to Q42026-27 and Q12027-28, the RBI's outlook remains positive, with respondents remaining confident until Q1:2027-28. However, input cost pressures are expected to persist, with selling prices anticipated to stay stable in the coming quarters. Additionally, services sector firms have the capacity to deliver 8.7 per cent more services during Q1FY27 using their current resources, according to the RBI.
Infrastructure companies also saw positive sentiment towards overall business conditions, employment, and turnover during Q2FY27. While they reported some easing in cost pressures, their optimism regarding selling prices and profit margins waned. For Q3FY27 and Q4FY27, infrastructure firms continue to express confidence in overall business conditions and turnover.
However, their expectations for selling prices and profit margins have weakened. For Q1FY28, infrastructure companies remain optimistic about business conditions and turnover, expecting input costs to rise alongside selling prices.
Written by urgent.news from The Economic Times - Economy's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
