India’s services sector growth hits four-month high in October as demand strengthens

India’s services sector activity expanded at its fastest pace in four months in October, supported by resilient demand, stronger business activity, and a rise in new orders, even as easing cost pressures provided some relief to businesses, according to a monthly survey released on Wednesday. 

The seasonally adjusted HSBC India Services Purchasing Managers’ Index (PMI) Business Activity Index rose to 55.8 in October from 55.2 in September, signalling the strongest expansion in the sector since June. However, businesses remained cautious about the outlook, with employment growth slowing to a four-month low. Growth in international sales also weakened to its slowest pace in nearly four years. 

New orders drive business activity 

Survey respondents attributed the increase in business activity primarily to higher new business inflows. Favourable demand conditions, new client acquisitions and successful advertising campaigns supported the growth in order books, the survey noted. 

"India's services PMI rose to 55.8 in October, a four-month high, as business conditions improved cautiously. Although overall demand remained fairly strong, new export orders recorded the slowest pace of expansion since February 2023," said Pranjul Bhandari, Chief India Economist at HSBC. 

In PMI terminology, a reading above 50 indicates expansion, while a score below that threshold signals contraction. 

Cost pressures ease, hiring slows 

Businesses reported a substantial moderation in cost pressures during October, offering some relief on the inflation front. Both input and output prices continued to increase, but at a slower pace than in September. "Input and output prices continued to rise, but at a slower pace than in the previous month, signalling some relief from inflation pressures," Bhandari said. 

Employment growth also moderated to its weakest pace since June, suggesting that some service sector companies have sufficient capacity to meet their current staffing requirements. 

Companies remained cautiously optimistic about the business outlook, although their hiring activity reflected a more measured approach. 

Composite PMI rises to four-month high 

Meanwhile, India's composite PMI, which captures activity across manufacturing and services, increased to 56.2 in October from 55.9 in September, indicating the fastest expansion in overall private sector output in four months. 

New business inflows at the composite level also accelerated, recording their strongest growth since June. However, employment generation softened, while business confidence weakened compared with September. 

Cost pressures eased across both manufacturing and services, bringing the aggregate rate of inflation to an 11-month low, the survey said. 

Composite PMI indices are weighted averages of the corresponding manufacturing and services PMI readings, with weights based on the relative contribution of the two sectors to official GDP data. 

S&P Global compiles the HSBC India Services PMI based on responses to questionnaires sent to a panel of around 400 companies operating in the services sector.