By Shaloo Shrivastava

Overview

BENGALURU (Reuters) – Activity in India’s dominant services sector rose at its fastest pace in five months in August as demand remained resilient amid easing inflationary pressures, a survey showed.

Key Metrics

The HSBC final India Services Purchasing Managers’ Index, compiled by S&P Global, rose to 60.9 in August, up from July’s 60.3 and exceeding a preliminary estimate of 60.4.

The reading has topped the 50-mark, separating growth from contraction, since August 2021. It marked the highest level since March and was above the long-run average.

Growth Drivers

“This growth was largely fueled by an increase in new orders, particularly domestic orders,” said Pranjul Bhandari, chief India economist at HSBC.

The new business sub-index rose slightly from July to a four-month high and was above its historical average.

International demand was also solid, but the growth rate softened sharply from July to a six-month low.

Business Confidence

While business confidence remained positive in August, it slid to its lowest in over a year. Firms were optimistic about resilience in demand and anticipated better growth in the upcoming year.

Employment Trends

Hiring in the services sector continued at a solid pace, albeit easing to its weakest since April.

Cost Pressures

Cost pressures rose moderately last month due to elevated food, labor, and transportation costs, albeit at a four-year low rate.

“On a positive note, input costs rose at their slowest pace in six months, with both the manufacturing and service sectors reflecting the same trend. Consequently, output price inflation receded in August,” added Bhandari.

With inflationary pressure easing, firms passed on costs to clients at a much milder pace than in July.

Inflation Trends

Data last month indicated that inflation in India eased to a near five-year low of 3.54% in July, largely due to a high-base effect suggesting the slowdown was temporary. A Reuters poll predicted inflation will average 4.2% this quarter and 4.6% next.

Composite PMI

A manufacturing PMI released on Monday dipped to a three-month low of 57.5 in August, but the improvement in services activity kept the overall Composite PMI unchanged from July’s 60.7.