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.

Image used for representational purpose.
| Photo Credit: Reuters

Business activity in India expanded at a faster clip this month from May thanks to gains in manufacturing and services, according to a business survey that also showed the pace of job creation was at its strongest in over 18 years.

Robust gains in both sectors at the end of the first fiscal quarter meant a strong start to India’s economy this financial year after it expanded by 8.2% last year – the fastest expansion among major countries – partly led by buoyant manufacturing.

HSBC’s flash India Composite Purchasing Managers’ Index , compiled by S&P Global, rose to 60.9 in June from last month’s final reading of 60.5.

That marked nearly three years above the 50-level separating growth from contraction on a monthly basis.

“The composite flash PMI ticked up in June, supported by rises in both the manufacturing and service sectors, with the former recording a faster pace of growth,” noted Maitreyi Das, global economist at HSBC.

The manufacturing index showed bigger gains to 58.5 from 57.5 in May while the dominant services industry’s reading rose slightly to 60.4 this month from 60.2, adding to the continued expansion in India even as the global economy slows.

That was backed by a strong expansion in both manufacturing output and orders as well as business gains among services firms.

New export orders expanded for a 22nd consecutive month in June and remained robust, though the pace eased slightly after record growth last month.

Robust demand prompted companies to hire more people, with overall employment generation rising at the fastest pace since April 2006. Job creation among manufacturers was higher than in the services sector.

Boosting jobs will remain the biggest challenge for the Narendra Modi government which got elected for a rare third term earlier this month, a Reuters poll showed.

Meanwhile, price increases at firms have eased since May, boding well for the outlook on retail inflation. Rises in services input costs eased to a four-month low, while the pace of increases in prices charged to clients was broadly unchanged.

“Input cost inflation eased slightly in June, but remained elevated with panellists citing increases in labour and material costs. The output price index suggests manufacturing firms were able to pass on higher costs to customers,” added Ms. Das.

“Optimism about future output weakened in June, but remained above the historical average.”

Even though business optimism weakened to a three-month low, the outlook for the coming year remained positive as companies expect output gains based on proposals in the pipeline, efficiency gains and forecasts for favourable exchange rates.