Services sector growth hits a four-month peak in October, PMI survey shows

New Delhi: India's services activity rose at its fastest pace in four months in October as strong domestic demand drove up new businesses and cost pressure eased to its lowest in six years, but growth in export orders and hiring slowed, a private survey showed on Wednesday.

HSBC's India Services Purchasing Managers' Index (PMI) inched up to 55.8 in October from 55.2 in the previous month. A reading ⁠above 50 indicates expansion.

New business, a proxy for demand, rose at its fastest pace since June on strengthening domestic demand. “Favourable demand conditions, new client wins and successful advertising boosted new order intakes, qualitative data showed,” the survey said.

Importantly, input cost inflation retreated to its lowest level since August 2020, although companies continued to see higher electricity, labour, raw materials and transportation costs. Inflationary pressure weakened as prices charged to customers inched up at their slowest pace in four months.

All four broad areas of the service economy tracked by the PMI survey recorded quicker expansions in new business and output, with growth led by finance and insurance. Real estate and business services came in last, the survey showed.

International sales orders remained the weakest in 45 months and hiring the slowest in four months, the survey said. Employment growth almost stalled, with hiring matching the pace in June — the ‌slowest ⁠pace in 10 months.

Pranjul Bhandari, chief India economist at HSBC, said business conditions improved cautiously in October. The slowdown in employment growth suggests “some service sector businesses have sufficient capacity to meet current staffing requirements”, she said.

The rate of increase in hiring was the joint-weakest in the current 10-month period of job creation and was only fractional overall. “Meanwhile, input and output prices continued to rise, but at a slower pace than in the previous month, signalling some relief from inflation pressures,” Bhandari added.

Cost pressures were the highest in the consumer services segment, the only category to see a stronger upturn in input prices than in September, the survey said. The softest rate of inflation was in the finance and insurance segment. Less than 3% of Indian service providers chose to raise their selling prices at the start of the December quarter, citing the pass-through of cost rises to clients, it added.

The survey results also showed that services companies made inroads into their backlogs. Unfinished business volumes dropped for the third time in the past four months, albeit moderately.

When assessing growth prospects, service providers were confident of a rise in output over the next 12 months. “That said, the level of positive sentiment fell in October and thus remained below its long-run average,” the surveyor said in a statement.

The composite PMI index, comprising both manufacturing and services, rose to its highest in four months, touching 56.2 in October from 55.9 in September.

New business intakes at the composite level expanded at the fastest pace since June. Private-sector activity rose at a faster rate in October than in the previous month, boosted by services.

Reflecting a faster increase in services activity, aggregate output rose at the fastest pace in four months. Factory production growth slowed, but nevertheless remained above that seen in the service economy. “Yet, job creation softened and businesses were less upbeat towards growth prospects than they were in September,” the surveyor said.

Cost pressures eased at manufacturing and services firms, dragging the aggregate rate of inflation down to an 11-month low.

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