India’s services sector sees fastest expansion since March

India's service sector experienced its fastest expansion since March in August 2024, driven by accelerated business activity amid productivity gains and a positive demand trend, according to the HSBC India Services Purchasing Managers' Index (PMI), compiled by S&P Global.

India's Service PMI surged to 60.9 in the said month from 60.3 in July 2024, indicating the strongest expansion rate in the past five months. The index reading in August was well above its long-run average.

"Indian service providers signalled that the strong start to the second fiscal quarter continued into August, with business activity expanding to the greatest extent since March as the growth of incoming new business ticked higher," HSBC note, compiled by S&P Global says.

It says payroll numbers also rose as companies remained "upbeat" regarding the economic outlook in August. "Another positive development included a slowdown in output charge inflation, which was helped by cost pressures retreating to their lowest in four years."

Pranjul Bhandari, Chief India Economist at HSBC, says the composite PMI for India continued to show strong growth in August. "This growth was largely fuelled by an increase in new orders, particularly domestic orders. Employment levels remained robust, though there was a slight decrease in the pace of hiring compared to July. On a positive note, input costs rose at their slowest pace in six months, with both the manufacturing and service sectors exhibiting the same pattern."

All these factors also resulted in a decline in output price inflation in August. "However, the outlook for the Indian private sector over the next year has moderated, reaching its lowest level in 15 months due to competitive pressure, although the Future Output Index remained above the long-term average," says Bhandari.

In terms of operating expenses, service providers signalled a further increase amid high food, labour and transportation costs. The overall rate of inflation was, however, modest and the weakest since August 2020, the report says.

The overall level of positive sentiment, however, slipped to a 13-month low in August. “21% of service providers foresee an increase in output over the coming 12 months (only 1% expect a fall), this is compared with roughly 30% in July. Some firms were concerned about competitive pressures,” says the report.

Meanwhile, India's manufacturing activity growth slowed to a three-month low in August as manufacturers signalled a "substantial yet softer" increase in new business and production, as per HBBC India PMI report. “Competitive pressures and inflation concerns hampered business confidence in August,” says the report.

The seasonally adjusted HSBC India PMI stood at 57.5 in August, below July's 58.1 reading but above its long-run average of 54, signalling a substantial improvement in operating conditions.