Domestic demand drives services sector PMI to 5-month high in August

New Delhi: India‘s services activity accelerated to a five-month high in August, aided by stronger expansion in business activity, new work and positive demand trends, even as the pace of employment growth slowed to a four-month low, a private survey showed on Wednesday.

The HSBC India Services Business Activity Index came in at 60.9 against 60.3 in July. A reading above 50 on the index shows expansion in activity.

A sister survey on Monday showed that India’s manufacturing activity slowed down in August.

Put together, at 60.7, the HSBC India Composite Output Index matched July’s reading.

“The Composite PMI for India continued to show strong growth in August, driven by accelerated business activity in the service sector, which experienced its fastest expansion since March,” said Pranjul Bhandari, chief India economist at HSBC. “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.” The simultaneously released CareEdge Economic Meter (CEM) expanded 9.4% year-on-year in July but witnessed a sequential moderation. Out of the 16 high-frequency indicators used in CEM calculation, 13 witnessed an annual growth in July. While debt issuances, e-way bill and petroleum consumption aided in CEM’s performance, slowing PMI services, contracting passenger vehicle sales and slowing credit growth hindered the performance.

As per the PMI survey report, service providers signalled a further increase in their operating expenses amid greater food and transportation costs.While finance and insurance was the best-performing area of India’s services economy in both output and new business, consumer services posted the sharpest increase in input costs during August. Charge inflation was led by transport, information and communications.

A pickup in total sales growth was centred on the domestic market, as new export business increased at the slowest pace in six months in August.

“Companies that reported an improvement commented on better demand from Asia, Australia, Europe, Latin America, the Middle East and the US,” said the survey report.

Confidence in the year-ahead outlook for business activity coupled with increasing backlog and sustained growth of new business continued to support job creation across the services sector.

The overall level of positive sentiment slipped to a 13-month low. Some firms were concerned about competitive pressures, according to the survey report.

Service providers signalled the strongest increase in business activity since March, while goods producers reported the weakest increase in production in seven months.

A similar trend was seen for new orders, with the services sector posting a quicker increase as manufacturing saw a slowdown.