India’s services sector activity grew at its fastest pace in four months during October. The HSBC India Services Purchasing Managers' Index rose to 55.8, up from 55.2 in September. Strong domestic demand helped businesses, though Pranjul Bhandari said, "Employment growth also slowed to its weakest pace since June," reflecting cautious hiring.
India's services sector activity expanded at its fastest pace in four months in October. The HSBC India Services Purchasing Managers' Index (PMI) Business Activity Index rose to 55.8 in October, from 55.2 in September.
Important to note, a reading above 50 indicates expansion, while a reading below 50 signals contraction.
Pranjul Bhandari, Chief India Economist at HSBC, said "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," she added.
Domestic demand drives services sector growth
New business orders remained the primary driver of growth in October. Companies reported stronger demand, new client wins and successful advertising campaigns, which supported an increase in sales.
Overall new business grew at its fastest pace since June. All four broad segments tracked by the survey recorded faster growth in output and new orders.
The Finance & Insurance segment led growth in both output and new business, while Real Estate & Business Services recorded the slowest expansion.
Domestic demand remained the main contributor to sales growth. Although export orders increased during the month, the pace of growth was marginal and the weakest since February 2023.
Hiring slows as business confidence weakens
Despite stronger business activity, service providers adopted a cautious approach towards recruitment in October.
Employment growth slowed to its weakest pace in four months. The increase in hiring was also among the slowest recorded during the current 10-month period of job creation.
Companies were able to manage their existing workloads as unfinished business declined for the third time in the past four months. The reduction in pending work was moderate.
Businesses remained optimistic about the outlook for the next 12 months. However, the level of positive sentiment declined in October and stayed below its long-term average.
Input cost inflation falls to over six-year low
Service providers reported a sharp slowdown in input cost inflation during October. Input costs increased at their slowest pace since August 2020, offering some relief to businesses.
However, some companies continued to report higher expenses on electricity, labour, raw materials and transportation.
Cost pressures remained highest in the Consumer Services segment. It was also the only category to report a faster increase in input costs compared with September. Finance & Insurance recorded the slowest pace of cost inflation.
Companies also raised their selling prices at a slower pace. Fewer than 3% of service providers increased their charges during October to pass on higher costs to customers.
Consequently, the rate of inflation in prices charged by service providers slowed to its weakest level since June.
Composite PMI rises to four-month high
India's private sector activity also expanded at a faster pace in October, supported by stronger growth in the services sector.
The HSBC India Composite PMI Output Index rose to 56.2 in October, from 55.9 in September. This marked the fastest expansion in overall private sector output in four months.
New business orders across the private sector also increased at the fastest pace since June. However, manufacturing output growth slowed, although it remained stronger than the expansion recorded in the services sector.
Meanwhile, input cost pressures eased across both manufacturing and services businesses, taking the aggregate rate of inflation to an 11-month low.
The increase in prices charged for goods and services also slowed. Overall output price inflation declined to its weakest level since February 2022.
However, inflationary pressures remained more pronounced in the manufacturing sector than in services.