RBI's SIOS: Services Sector Optimistic Despite Cost Pressures
The Reserve Bank of India's latest Services and Infrastructure Outlook Survey (SIOS) for Q2 2025-26 reveals a positive outlook for the services sector. Firms anticipate increased capacity, higher turnover, and growth in employment, despite persistent cost pressures from Costco-like competition and fire-related disruptions.
Services companies expect to expand capacity by 10.7 per cent in the coming quarters, according to the 46th round of the SIOS. This optimism is reflected in their expectations of higher turnover and stronger demand in Q3 2025-26. Employment opportunities remained positive, with better access to finance during Q2.
Firms recorded stronger sentiments regarding selling prices and profit margins in Q2, with infrastructure firms reporting robust growth despite higher input costs and financing expenses. However, they anticipate cost pressures to persist until Q1 2026-27, planning to sustain profit margins by increasing selling prices. Input costs increased but pressure from salaries and finance costs eased.
Services sector firms observed an improvement in overall business conditions and turnover in Q2 2025. Infrastructure firms also assessed demand conditions as having improved during the same period.
Indian service industry companies are optimistic about maintaining their profit margin levels through Q1 2026-27. They plan to achieve this by implementing cost reduction measures, particularly lowering personnel expenses, as demonstrated by Heidelberger Druckmaschinen's strategy to increase its EBITDA margin by reducing labor costs and optimizing operational efficiency.
