Image used for representation purpose only.

Business activity in India’s services sector accelerated at a five-month high pace in August, aided by productivity gains, a pullback in cost pressures which eased to a four-year low, and higher domestic demand. However, optimism among services firms about next year’s prospects slumped to a 13-month low, while it slipped to a 15-month low for India’s private sector manufacturers and services players on the whole, as per a private survey-based index. 

The seasonally adjusted HSBC India Services Business Activity Index, based on responses from 400-odd private players, rose to 60.9 in August from 60.3 in July. A reading of over 50 on the seasonally adjusted PMI indicates an expansion in activity levels.

Overall private sector activity, factoring in manufacturing firms, was unchanged from July levels as per the HSBC India Composite Output Index that had a reading of 60.7 in August. The uptick in Services was tempered by a seven-month low pace of growth in factories’ output.

Sales growth was also the weakest since May at a composite level. Input costs rose at their slowest pace in six months, with both the manufacturing and service sectors exhibiting the same pattern, said Pranjul Bhandari, chief India economist at HSBC. 

Overall new services orders grew at the strongest pace since April, although 5% of the surveyed firms indicated a deterioration in order books and fresh export business slowed down last month to a pace that was the weakest in six months. The growth in August was largely fuelled by an increase in domestic orders, Ms. Bhandari noted.

Among the services sectors, Finance & Insurance was the best-performing segment both in terms of output and new orders. Consumer services reported the highest uptick in input costs. While service providers signalled a further increase in their operating expenses, amid greater food, labour and transportation costs, the overall rate of inflation was the weakest since August 2020.

After reporting a seven-year peak surge in prices charged to customers in July, most firms resisted fresh price hikes in August, with less than 4% of survey participants raising their average selling price over July levels. These hikes were primarily led by transport, information and communication services firms.

Services firms continued to expand payrolls, but the hiring pace dropped to a four-month low in August, while Outstanding business volumes rose at the weakest rate since February.

“Whereas 21% of service providers foresee an increase in output over the course of the coming 12 months [only 1% expect a fall], compared with roughly 30% in July,” S&P Global, which compiles the index, said in a note, stressing that some firms were concerned about competitive pressures.

 India’s dominant services industry grew faster in March 2024 amid strong demand, according to a private business survey that also showed employment increased at the fastest rate in seven months and export business expanded at a record pace.
| Photo Credit: The Hindu

Sales and business activity in India’s Services sectors clocked their biggest expansion in over 13 and a half years in March, bolstered by a record uptick in export orders, as per the HSBC India Services Purchasing Managers’ Index (PMI) which rose to 61.2 to 60.6 in February. A reading of more than 50 on the index indicates growth in activity levels.

With fresh work orders increasing capacity pressures at service providers, they raised employment levels at the joint-fastest pace since November 2022 and the highest pace since August 2023. On the flip side, input costs as well as charges levied on customers grew at a faster pace, with output charges raised at the highest rates since July 2017.

Barring real estate and business services, input costs and output charges rose at a stronger pace for all sectors, with the highest input cost inflation seen in Consumer Services and Finance & Insurance seeing the steepest surge in selling prices. Firms surveyed for the index reported higher labour and material costs as key challenges.

Though business sentiment levels remained positive, they slipped to a four-month low in March, with some concerns emerging about competitive pressures. “India’s services PMI rose in March, following a small dip in February, on the back of strong demand that spurred sales and business activity,” said Ines Lam, HSBC economist.

Finance & Insurance services saw the highest increase in output and sales. New export business rose at the fastest rate since the PMI series started in September 2014, with firms noting gains in orders from Africa, Asia, Australia, Europe, the Americas and the Middle East.

With the Manufacturing PMI also reporting a sharp uptick in March, overall private sector output grew at the second-highest pace in 13.5 years, slightly lower than the upticks recorded in July 2023. The HSBC India Composite PMI Output Index rose from 60.6 in February to 61.8 in March.

Services firms reported higher increases in expenses, and also contributed more than factories towards selling price inflation, which quickened to a five-month high. 

Representational image only.
| Photo Credit: The Hindu

 

Manufacturing firms’ order books and output levels expanded at the fastest pace in nearly three years this August, as per the S&P Global India Manufacturing Purchasing Managers’ Index (PMI) that rose to 58.6 last month from 57.7 in July. 

A reading of over 50 on the index reflects growth in activity levels and August was the 26^th month in a row that the PMI score was above 50.   

Though input costs escalated, firms replenished their inventories at the second highest pace in 18-and-a-half years and restrained from hiking selling prices in tandem with higher costs. Firms raised output costs at the slowest pace in four months, though input costs rose at the fastest pace in a year. 

New orders grew at the fastest pace since January 2021, with export demand seeing the sharpest uptick since November last year. Firms surveyed for the index reported that they had secured new work from clients in Bangladesh, China, Malaysia, Singapore, Taiwan and the U.S. 

To cope with the additional work flow, Indian manufacturers reportedly hired a combination of permanent and temporary staff on both part- and full-time bases. However, overall employment grew at the slowest pace in four months. 

“The presence of stronger cost inflationary pressures serves as a reminder of the challenges inherent in managing growth. Firms addressed rising input prices by lifting selling charges. However, the need to maintain competitiveness helped restricted charge inflation,” noted Pollyanna De Lima, economics associate director at S&P Global Market Intelligence. 

With the manufacturing PMI painting a vibrant picture of the sector in August, Ms. De Lima reckoned the sector looks set to provide a strong contribution to economic growth in the second quarter of 2023-24. Manufacturing GVA (Gross Value Added) grew 4.7% in the first quarter (April to June 2023) as per estimates released by the National Statistical Office on August 31.

“Companies’ strategic focus towards a global orientation were evident via a sharp and quicker expansion in international sales. Export-centric tactics should help ensure that production remains on an upward path in the coming months,” Ms. De Lima said.