Services PMI Rises To 60.9 In August, Charge Inflation Recedes

Indian service providers signaled that the strong start to the second fiscal quarter continued into August, with business activity expanding to the greatest extent since March, as growth of incoming new business ticked higher.

At 60.9 in August, the seasonally adjusted HSBC India Services Business Activity Index, continued to see a rise from 60.3 in July. The headline figure indicated the strongest rate of expansion since March and one that was well above its long-run average.

At 60.7, the HSBC India Composite Output Index matched July's reading and therefore remained comfortably above its long-run average of 54.6.

Growth in services was underpinned by productivity gains and positive demand trends. The current run of new order growth marginally increased from July and was the strongest since April. Sub-sector data showed finance and insurance as the best performing area of India's service economy regarding both output and new business.

Underlying data indicated that the pick-up in total sales growth was centered on the domestic market, as new export business increased at a slower pace in August. The rise was still marked, despite easing to a six-month low.

Service providers signaled a further increase in their operating expenses, amid greater food, labour and transportation costs. The overall rate of inflation was, however, modest and the weakest since August 2020. Subsequently, the overall rate of charge inflation across India's service economy was moderate. The rise was also slower than that seen in July.

Confidence in the year-ahead outlook for business activity, coupled with rising backlogs and sustained growth of new business continued to support job creation across the service sector. The pace of employment growth remained solid, despite slowing to a four-month low. 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. Subsequently, the overall level of positive sentiment slipped to a 13-month low. Some firms were concerned about competitive pressures.