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India’s services sector activity expanded at its fastest pace in four months in October, driven by stronger domestic demand and new business orders, while input cost inflation eased to its lowest level in more than six years, according to HSBC India Services Purchasing Managers’ Index (PMI) released on Wednesday.
The improvement was supported by a marked increase in new business, with sales rising at their fastest pace in four months. Survey participants cited favourable demand conditions, new client acquisitions and successful advertising campaigns as key drivers of higher orders.
However, the pace of hiring slowed to a four-month low, while growth in international sales weakened to its slowest since February 2023.
Pranjul Bhandari, chief India economist at HSBC, said, “India’s services PMI rose to 55.8 in October, a four-month high, as business conditions improved cautiously. Although overall demand remained fairly strong, new export orders recorded the slowest pace of expansion since February 2023. Employment growth also slowed to its weakest pace since June, suggesting that some service sector businesses have sufficient capacity to meet current staffing requirements. Meanwhile, input and output prices continued to rise, but at a slower pace than in the previous month, signalling some relief from inflation pressures. India’s composite PMI increased to 56.2 in October, from 55.9 in September, marking the fastest rise in aggregate output in four months and reflecting healthy business activity.
Domestic demand drives services sector growth
Domestic demand remained the principal driver of growth in India’s services sector during October, with all four broad segments covered by the survey reporting faster increases in business activity and new orders.
Finance and Insurance led the expansion in both output and new business, while Real Estate and Business Services recorded the slowest growth among the four segments.
Although new export orders continued to increase, the pace of expansion was marginal and the weakest in nearly four years, pointing to a divergence between domestic and international demand.
Input cost inflation falls to lowest since August 2020
The survey showed a substantial easing of inflationary pressures across the services sector, with input costs increasing at their slowest pace since August 2020.
Despite the overall moderation, some firms reported higher expenditure on electricity, labour, raw materials and transportation.
Cost pressures were most pronounced in Consumer Services, the only segment where input price inflation accelerated from September. Finance and Insurance recorded the weakest inflation among the surveyed segments.
The easing of input costs also translated into slower increases in selling prices.
Fewer than 3 per cent of service providers raised their selling prices during October, with the overall rate of charge inflation remaining marginal and easing to its lowest level since June.
Hiring slows as business confidence weakens
Despite stronger business activity and new orders, employment growth in the services sector eased during October.
The pace of job creation was the joint-weakest in the current 10-month period of employment growth and remained marginal overall.
The slowdown came as companies reduced their outstanding workloads. Unfinished business declined for the third time in four months, although the reduction was moderate.
Business confidence also weakened during the month. Although service providers remained optimistic about output growth over the next 12 months, the level of positive sentiment declined from September and remained below its long-run average.
India’s composite PMI rises to 56.2 in October
Meanwhile, the HSBC India Composite PMI Output Index, which tracks activity across the manufacturing and services sectors, rose to 56.2 in October from 55.9 in September.
The increase marked the fastest expansion in overall private sector output in four months, supported by stronger services activity.
Manufacturing output growth moderated during the month but continued to outpace expansion in the services sector.
New business orders across the private sector increased at their fastest rate since June. However, employment growth softened, and businesses were less optimistic about future activity than in September.
Inflationary pressures also eased across both manufacturing and services, with the aggregate rate of input cost inflation falling to an 11-month low.
Selling price inflation moderated further, reaching its lowest level since February 2022. Price pressures remained less pronounced in services than in manufacturing.
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