New business activity in the services industry and manufacturing orders remained robust. File
| Photo Credit: Reuters

India’s business activity accelerated at its fastest pace in three months in July, thanks to strong demand, especially in the services sector, according to a survey that also showed companies hired at the fastest pace in over 18 years.

The data reflected sustained growth in the private sector, which according to the NDA government’s Union Budget since the national election will get incentives to improve skills and spur employment.

HSBC’s flash India composite purchasing managers’ index, compiled by S&P Global, rose to 61.4 this month from June’s final reading of 60.9, marking three years of expansion. The 50-level separates growth from contraction.

“The Flash Composite Output Index signalled continued robust growth in India’s private sector,” noted Pranjul Bhandari, chief India economist at HSBC. “The rise in output in July was led by a further increase in business activity in the manufacturing sector, while the pace of expansion in services output also accelerated and remained well above its long-run average.”

Services, manufacturing register growth

Overall expansion was led by the dominant services industry, whose PMI rose to a four-month high of 61.1 this month from 60.5 in June. Growth in manufacturing was also robust, and the factory PMI increased to 58.5 from 58.3 – its highest since April.

The report said favourable market conditions, buoyant client appetite and enhanced technology helped in the improvement of private sector activity. Both new business activity in the services industry and manufacturing orders remained robust.

Job creation rose at the fastest pace since April 2006, supporting overall business confidence at the start of this quarter, which eased to a seven-month low in June.

Inflation worries

“Companies turned more optimistic in July, following a moderation in business confidence in June,” Mr Bhandari said, adding, “We note that the rate of input cost inflation continued to trend higher in both sectors, which has driven firms to keep raising sales prices.”

Meanwhile, prices charged rose at the steepest pace in over 11 years, but robust demand allowed firms to pass on lofty input costs from high material, transportation and labour prices, to their clients.

Higher prices could cloud the Reserve Bank of India’s interest rate outlook, which is focused on returning inflation to its 4% medium term target. The central bank is expected to cut its key policy rate next quarter.

Image for representation.
| Photo Credit: Reuters

India’s services sector activity gained momentum in September, with new orders rising at the second fastest rate since June 2010, as per the S&P Global India Services Purchasing Managers’ Index (PMI), which moved up to 61 from 60.1 in August. 

A reading of over 50 on the index indicates an expansion in activity levels and September’s number, albeit slightly lower than the 13-year high of 62.3 in July, still indicated one of the strongest upticks in output in 13 years.   

With the rise in input costs retreating substantially to one of the lowest levels since late 2010, Services players raised prices at the slowest pace in six months, and exuded the highest positive sentiments about business prospects a year ahead, in nine years. 

“Additional staff were recruited to aid firms’ efforts to keep on top of current workloads and in anticipation of further growth in the coming months. The overall pace of job creation was moderate, but above its long-run average,” the firm said. 

Growth in new international orders slowed to a three-month low, yet was one of the quickest since September 2014, S&P Global Market Intelligence said, citing the Survey-based findings that are factored into the PMI. Demand grew from clients in Asia, Europe and North America, as per survey participants. 

The Services PMI has averaged 61.1 over the second quarter, slightly higher than the April to June average of 60.6. 

“The latest PMI results brought more positive news for India’s service economy, with September seeing business activity and new work intakes rising to one of the greatest extents in over 13 years,” said Pollyanna De Lima, economics associate director at S&P Global Market Intelligence. 

“Services charges rose at a softer rate as cost pressures receded to one of the lowest in two-and-a-half years. Although the latter indicates that near-term output price inflation may cool, worries about potential fluctuations in food prices due to El Niño means the RBI is highly unlikely to cut rates until early next year,” she averred. Improved optimism and buoyant demand conditions augur well for further growth in the sector, Ms. De Lima underlined.    

The Services PMI, read together with the Manufacturing PMI which eased to a five-month low of 57.5 in September with new orders slowing down, India’s private sector recorded the second sharpest increase in aggregate new business for over 13 years. The S&P Global India Composite PMI Output Index was up from 60.9 in August to 61 in September, indicating one of the strongest rates of expansion in just under 13 years, the firm added.